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LIBRARY   OF 

ALLEN  KNIGHT 

CERTIFIED  PUBLIC  ACCOUNTANT 

502  California  Street 

SAN     FRANCISCO.     CALIFORNIA 


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INTERNATIONAL  EXCHANGE 


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INTERNATIONAL 
EXCH  A NGE 

Its  Terms,  Parts,  Operations  and  Scope 


A  practical  work  on  THE  FOREIGN  BANKING 
DEPARTMENT  AND  ITS  ADMINISTRA 
IION      BY      AMERICAN      BANKERS 

By    ANTHONY    W.    iM  A  R  G  R  A  F  F 

Manager  Foreign  Exchange  Department  American  Express  Company, 
Chicago;  Formerly  Manager  of  the  Foreign  Department  of  the  National 
Bank  of  the  Republic  of  Chicago;  nnd  sometime  Assistant  Manager  and 
Associated  for  about  twenty  years  with  the  Foreign  Department  of  the 
Union    National    Bank    of   Chicago. 


(THIRD     EDITION) 


REGISTERED 
No. 


INTERNATIONAL      EXCHANGE 

POST      OFFICE     BOX      177,      CHICAGO 


y\(h 


Copyright  1903  by 

ROBERT    C.    FERGUS, 

Assigned  Dec.  28,  1903  to 

Anthony    W.    Margrakf 

CHICAGO. 


T\t«'  (VeAf  oli  Marshall-Jackson  Co 
Cnicgtfo. 


HH«n^,#rs*  ^ 


CONTENTS: 

Portrait,  -        -        - Frontispiece. 

Preface, 3- 

CHAPTERS: 

I.  Superior  Earning  Factors  in 

European  over  American  Banking: 

System  of  Central  and  Branch  Banking;  Comparative  Tables;  The 
Bank  of  England;  The  Open  Discount  Market;  The  Acceptance 
Account:  The  German  Giro  Conto  Transfer;  Premium  or  Dis- 
count Unknown;  Summary;  The  National  Banking  Act  of  the 
United  States, 5 

II.  The  Foreign  Department: 

Expansion  of  The  Foreign  Department;  Exporters,  Importers,  and  the 
Public,  Beneficiaries;  Competition;  Wide  Scope  and  Influence  of 
The  Foreign  Department;  Its  Dividends;  Security  to  Document- 
ary Bills;  Bills  Convertible  into  Cash,        -         -        -        -        13 

III.  Foreign  Exchange: 

Definition;  Underlying  Security;  Increase  in  Exports  and  Imports  of 
United  States;  American  Securities  Dealt  in  for  Foreign  Account; 
Chicago  Exports;  Benefits  from  Foreign  Trade  Relations,  19 

IV.  Description  of  Bills  and  Collateral,  with  General 

Instructions  for  their  Issue: 

Documentary  Payment  Bills;  Bills  of  Lading;  Suggestions;  Hypothe- 
cation Paper;  General  Hypothecation  Power;  Certificates  of 
Marine  Insurance;  Shipper's  Invoice;  Inspection,  Weight,  and 
Consular  Certificates;  Necessary  Shipping  Documents,      -        22 

V.  Factors  and  Conditions  Influencing  Fluctuations  in 

Exchange  Rates: 

Logical  Reasons  for  Fluctuations;  Supply  and  Demand;  Conditions 
Creating;  Abnormal  Supply  and  Demand  for  Foreign  Bills  ol 
Exchange;  Heavy  Demand  for  Bankers'  Bills;  Gold  Exporr> 
Temporarily  Checked,  .......30 

vii 


380291 


viii  International  Exchange. 

^  VI.    Finance  Bills: 

Enormous  Volume  Outstanding  First  of  Year,  1903;  London  Greatest 
Purchaser  of;  The  American  Finance  Bill;  Sterling,  Mark,  and 
Franc  Finance  Bills;  High  Local  Interest  Rates  for  Money 
against  Low  Interest  Rates  in  London;  Earning  Power,  Effi- 
ciency,  and  Advantages  of  Finance  Bills,  -        -        -        34 

s  VII.    Relative  Risk  in  Purchase  of  Bills: 

Best  Guide  for  Purchase  of;  Safe  Purchases: — When  Collateral  is  i, 
Staple  Non  -  Perishable  Merchandise ;  2,  Bankers'  Checks  upon 
Foreign  Correspondents ;  3,  Bankers'  Sixty  and  Ninety  -  Day 
Sight  Drafts;  Purchases  Involving  More  or  Less  Risk: — i,  When 
Collateral  Perishable;  2,  Live  Stock;  3,  Clean  Bills;  Fundamental 
Security;  Security  to  Documentary  Payment,  Acceptance,  and 
Clean  Bills;  Checks  and  Drafts;  The  Single  and  Double-Named 
Bills;    Foreign  Banking  Laws  and  Regulations,  -        -        43 

^  VIII.    Cable  Transfers: 

Definition;  Factors  Governing  Prices  of;  Telegraphic  Cipher  Code; 
Private  and  Other  Codes;  Expenses  for  Transfers;  Conditions; 
Specimen  Form  of  Receipt,  ._--.-        49 

^  IX.    Foreign  Bills  of  Exchange  Bought  and  Sold  for 
Future  Delivery,  when  a  Conservative  and 
Not  a  Speculative  Practice: 

Wilful  Speculation;  Fixed  Basis  of  Operation  for  Purchase  and  Sale; 
Working  Balance;  Options  to  Secure  Profit;  Future  Deliveries 
in  Installments;  Bankers'  Basis  for  Quotations  of  Futures; 
When  Purchases  and  Sales  Conservative,  -        -         -        54 

X,  Foreign  Bills  of  Exchange 

Purchased  for  Investment: 

Purchases  Foreign  Acceptance  Bills  Make  Best  Investment;  Conditions 
Causing  High  Interest  Rates;  Remittances  of  Bills;  Long-Time 
Bills  Demand  Loans;  Suggestions,     -----        60 

XI.  Modern  Method  to  Collect  Bills  upon  Countries 
where  American  Bankers  have  no  Active  Accounts: 

Interest  on  Drafts  Essential  Feature;  Two  Classes  Bills:  Bought  Out- 
right, and  Bills  for  Collection  and  Accounting;  Illustration:  Draft 
on  New  South  Wales;  Specimen  Collection  Letter;  Expenses; 
Modern  Method  to  Collect  Direct,        -----        gg 


'1^ 


Contents.  ix 

XII.  Travelers'  Letters  of  Credit: 

Profitable  Source  of  Revenue;  How  to  Issue;  Specimen  Letter  of  Credit; 
Specimen  of  Cover,  and  of  Pages  Showing  List  of  Correspondents 
Throughout  the  World;  Form  of  Letter  of  Credit;  How  Used; 
Terms  of  Issue;    Specimen  Form  of  Guarantee,  -        -        73 

XIII.  Commercial  Letters  of  Credit: 

Used  by  American  Importers;  Benefits  to  Importers;  To  Foreign 
Exporters;  Specimen  Commercial  Letter  of  Credit;  Instructions; 
Form  of  Agreement  for  Commercial  Letters  of  Credit;  How 
Used;    Specimen  Trust  Receipt;    Commissions,  -         -        88 

XIV.  System  of  Issuing  Drafts  upon  all  Countries 

of  the  World    where    no    Active    Accounts  of 
Drawers  are  Kept: 

Active  Accounts;  Suggestions  as  to  the  Issue  of  Such  Drafts;  Illus- 
tration; Draft  on  Calcutta,  India;  Countries  on  Silver  Monetary 
Basis;  Time  Limitation  of  Drafts;  Protection  to  Bank  of  Issue; 
Drafts  on  Pan-American  Countries,     -         .         .         .        -        g8 

XV.  New  York  City  Practically  Absorbs  by 

Purchase  all  American  Foreign  Exchange: 

Now  York  City  the  Financial  Metropolis  of  United  States  of  America; 
Basic  Prices  and  Quotations  for  Foreign  Exchange  Emanate 
there;  New  York  City  and  Chicago  Foreign  Exchange  Brokers 
Linked;  The  Chicago  Market;  Absorptive  Power  of  New  York 
Market  National;    Reason,  ...---        104 

XVI.  London  Agencies  of  European 

Continental  Banking  Institutions: 

Branch  Continental  Banks  in  London;  Reason  for;  English  Money 
Market  Open  to  the  World;  Comparison;  Such  Branch  Banks 
Conduct  General   Banking  Business  in  London,         -         -        106 

XVII.  The  English  Account: 

Its  Proportions  Colossal;  Terms  and  Conditions;  Innoration  as  to 
European  Account;  Commission  Basis;  Factors  Controlling 
Daily  Exchange  Operations;  Way  to  Purchase  Bills ;  Document- 
ary Payment  Bills;  Retirement  Rate  of  Discount;  Bank  of 
England  Discount  Rate;  Power  of  the  Bank  of  England;  Pur- 
chases of  Drafts  Secured  by  Perishable  and  Non- Perishable 
Goods;   Prices  therefor;   Margin  of  Profit  Nominal,  -        109 


X  International  Exchange. 

^  XVIII.    The  German  Account: 

"Filiales"  or  Branch  System  of  Banking;  Berlin  Office;  German  Bank- 
ers' Sources  of  Income;  Terms  and  Conditions;  Bill  Stamp 
Duties;  Prices  for  Bills;  German  Documentary  Payment  Bills; 
Letters  of  Delegation;  Fraction  of  Value  for  Marks  Accurately 
Expressed;  German  Customs;  Discount  Rates;  Collection 
Charges,        .-_-------        130 

nXIX.    The  French  Account: 

Consists  of  a  Series  of  French  Banks;  Relations  Between  the  French 
Banks,  and  their  Relation  with  the  American  Bank;  Commis- 
sions; Terms  and  Conditions;  Quotation  of  Rates  for  French 
Exchange;  Method  of  Quoting;  Examples;  Fractional  Quota- 
tions; Examples;  Prices  for  Bill*  ;  Manner  of  Keeping  Account; 
Paris  Office  Clearing-House  for  American  Business  with  Belgium, 
Switzerland,  and  Italy;   Adjustment  of  Discounts,    -        -         142 

XX.    Holland,  Belgium,  and  sundry  Foreign  Accounts: 

System  of  Banking;  Franco  Commission;  The  Holland  Account; 
Dutch  Terms  and  Conditions;  Prices  for  Drafts  on  Holland; 
Basis  for  Purchase  of  Dutch  Bills;    Arbitrage  Transactions; 

The  Belgian  Account;  Belgian  Terms  and  Conditions;  Price  to  Pay 
for  Draft  on;     Belgian  Bills; 

Austria,  Switzerland,  Italy,  Denmark,  Norway,  and  Sweden;  European 
Cities  Clearing  Houses  for  American  Goods; 

The  Austrian  Account;  Terms  and  Conditions;  The  Cost  of  Credit 
Balance  in  Vienna; 

The  Swiss  Account;    Swiss  Terms  and  Conditions; 

The   Italian    Account;     Terms   and    Conditions;     Price   for   Draft  on; 

Italian  Account  Current  Commission; 
The  Scandinavian  Accounts  —  Denmark,  Norway,  and  Sweden;   Terms 

and   Conditions;    Charges  on   Bills  payable  in   Sterling,  Marks, 

or  Kroner;  Advices  for  Drafts; 

Russia : 

Direct  and  Indirect  Exports;  Long -Time  Credits;  International 
Relations  between  Germany  and  Russia  Close;  Suggestions  as 
to  Issue  of  Drafts  on  Russia;  Price  for  Drafts  on;  Examples,  151 


Contents.  xi 

XXI.  Description  of   Documentary  Acceptance   Bills 

and  Collateral;  Letters  of  Delegation  and 
Bankers'  Checks,  with  General  Instructions 
for  their  Issue: 

These  Bills  for  their  Better  Understanding  Follow  the  European 
Accounts;  Documentary  Acceptance  Bills;  Specimen  Document- 
ary Acceptance  Bill ;  Shipping  Documents  ;  How  Used  ;  Letters 
of  Delegation  and  Specimen ;  Bankers'  Checks ;  Specimens  of 
London,  German,  and  French  Checks;  Suggestions;  Specimen 
Banker's  Check  for  General  Use  ;    How  Issued,         -        -         i8o 

XXII.  Bank  Post  Remittances: 

Nature  of;  How  Drawn;   Specimen  Form;    Specimen  Receipt  for,     i88 

Del  Credere: 

Contract  Exclusively  European;  Comparison;  Example:  Antwerp 
Merchant;  The  American  Conversion  of  Single -Named  Bill  to 
Double -Named  Bill  Suggests,  -        -        _        _        -        igo 

XXIII.  General  Instructions  Concerning  Conduct 

of  the  Foreign  Accounts: 

General  Instructions;  Remittances;  Direct  Remittances  to  Avoid  Risk; 
Example  :  Dublin  Draft ;  Instructions  Permanent  and  Otherwise 
to  Foreign  Correspondents;  Drafts;  Use  of  Discounts  to  Save 
Money;  Discount  Bills  to  Prevent  Overdraft;  When  to  Discount 
Bills ;  Lower  Discounts  on  Bills  for  Immediate  Delivery  than 
To  Arrive,     ----------         ig2 

XXIV.  New  York   Exchange: 

Quotations  for;  when  New  York  Exchange  a  Factor;  when  a  Loss, 
when  a  profit;  Examples;  Large  Demand  in  Western  States 
for  New  York  Exchange, 198 

The  Foreign  Exchange  Broker: 

Where  Prices  of  Commodities  Established;  The  Stock  and  Cotton 
Exchanges;  Boards  of  Trade;  Duties  Foreign  Exchange  Broker; 
Watches  Constant  Fluctuations;  his  Commissions;  his  Services 
Valuable,       ----------        200 


xii  International  Exchange. 

XXV.  Conversions: 

Conversions  of  the  Moneys  of  Foreign  Countries  into  United  States 
Money,  and  Vice  -Versa  Operations ;  Additions  and  Subtractions 
in  English  Money,  and  Computation  of  Interest  or  Per  Cent,  on 
English  Money;  Computations  also  of  Ad  Valorem  Duty  on 
Importations;  Conversion  of  English,  German,  French,  and 
Swedish  Moneys;  Exchange  Tables,  -        -        .        ■        202 

XXVI.  Arbitrage  Transactions: 

What  they  are  ;  Operations  leading  up  to;  Gold  or  Bullion  Points; 
Mint  Pars;  Factors  tending  to  Advance  or  Depress  Prices  for 
Checks  on  London;  Indirect  Factors;  Conversions  and  Parities 
of  Exchange;  Importance  of  Immediate  Telegraphic  Advices; 
Result  of  Telegraphic  Delays  Two  -  Fold ;  Reasons  for  Less 
Frequent  Conversions  of  Francs  into  Pounds,  Sterling,  than  other 
Continental  Exchanges;  Example;  American  -  Dutch  -  English 
Arbitrages  most  frequent;  Parity  of  Exchange  for  Checks  on 
Holland;    Illustrations;     Scope  of  Arbitrations;     Summary,    213 

XXVI!.    Gold  Exports  and  Imports: 

Periods  for;  Causes  of;  Influences  of;  Factors  against  and  in  favor 
of  the  United  States;  Reason  for  American  Debit  Balance; 
Power  of  Bank  of  England;  Commercial  Gold  Bars;  Gold  Coin; 
Cost  of  Shipping  Gold;  Possible  Maximum  Loss  on  Foreign 
Exchange, 227 

XXVIII.    Monetary  Units  and  Moneys 

of  all  the  Countries  of  the  World: 

Values  of  Gold  and  Silver  Coins,  Actual  Mint  Values  and  Not  Market 
Values,  of  the  following  Countries:  Europe;  Asia;  Africa;  Islands 
of  the  Pacific  Ocean;  North  America;  Mexico;  United  States; 
Central  America;  Islands  in  the  Atlantic  Ocean;  South  America; 
Similarity  of  Monetary  Systems  of  Different  Countries ;  Coinage 
of  Money ;  Revised  Valuta  of  April  i,  1903,      -        -        -        235 

Complete  Index, 291 


PREFACE. 

TH E  paucity  of  text-books  on  INTERNATIONAL 
Exchange,  combined  with  their  urgent  need  to 
meet  the  constantly  increasing  American  international  trade 
relations,  has  given  rise  to  a  desire  to  place  before  the  public 
a  volume  containing  general  practical  information  upon 
Foreign  Exchange;  and  at  the  outset  it  would  seem  after 
examination  that  the  adjective 

International  more  accurately  expresses  the  basis  of,  more 
properly  defines  the  limits  of,  and  more  clearly  presents  the 
character  of  exchanges  between  Nations  than  the  word 
Foreign,  and  for  these  reasons  the  Author  justifies  his  substi- 
tution of  International  for  Foreign  in  the  present  Title. 

The  constant  aim  of  the  Author  herein  has  been  to  draw 
comparisons  and  submit  illustrations,  wherever  this  course 
was  deemed  expedient,  to  better  and  more  clearly  demon- 
strate the  practical  hypotheses  of  the  various  examples 
presented  within  these  pages. 

International  Exchange  purports  to  deal  with  its 
terms  and  component  parts,  and  to  introduce  an  explicit 
exposition  of  a  modern  Foreign  Banking  Department  from 
its  inception  to  its  daily  actual  operations  as  conducted  by 
American  banking  institutions. 

The  elimination  so  far  as  possible  of  all  technical  terms 
and  phrases  will  appeal  both  to  the  layman  and  the  student 
of  finance  for  whom  the  succeeding  pages  are  aimed  to  be 
presented  in  a  readable  and  digestible  form;  the  Author 
hopes  that  his  efforts  to  work  out  his  subject-matter  free 
from  such  terms  and  phrases  may  attain  and  merit  success. 

International  Exchange  in  a  concrete  sense  furnishes  a 
theme  of  vast  scope,  and  its  teeming  literature  would  fill  a 

3 


4  ,  International  Exchange. 

library;  the  production  of  a  concise  treatise  embracing  the 
essentials  requisite  to  a  general  practical  knowledge  of  Foreign 
Exchange  within  a  space  of  comparatively  few  pages,  limits 
necessarily  fuller  exposition. 

Any  abridgment  herein  therefore  of  the  text  should  be 
construed  to  a  desire  to  include  the  essentials  within  a  book, 
not  too  large,  for  ready  reference. 


During  the  period  of  several  years  last  past,  the  Writer 
with  the  present  book  in  contemplation  has  had  the  honor  of 
informally  discussing  European  banking  methods  with  Messrs. 
Christopher  R.  Nugent,  Manager  of  The  Union  Discount 
Company  of  London,  Limited,  London;  G.  Zwitgmeyer, 
Director  der  Deutschen  Bank,  London ;  Arnold  EUert, 
Dresdner  Bank,  London ;  Herbert  M.  Gutmann,  Dresdner 
Bank,  London;  Conrad  Hinrich  Donner,  Hamburg;  Paul 
Herzog,  Hamburg;  and  Maur  Philipson,  Stockholm. 

To  Mr.  Howard  K.  Brooks  of  Chicago  due  acknowledgment 
is  made  for  the  use  herein  of  Chapters  XXV  and  XXVHI, 
entitled  "Conversions"  and  "The  Monetary  Units  and 
Moneys  of  all  the  Countries  of  the  World,"  respectively, 
from  his  work  on  "Foreign  Exchange." 

To  the  Directors  and  Officials  of  The  National  Bank  of  the 
Republic  of  Chicago  for  their  courtesy  in  permitting  the  use 
of  several  specimen  forms,  and  to  Messrs.  John  A.  Lynch 
and  William  T.  Fenton,  its  President  and  Vice-President, 
respectively,  for  their  personal  consideration  to  the  Writer, 
appreciation  thereof  is  herewith  expressed. 


To  my  friend,  Mr.  Henry  D.  Baker  of  Chicago,  I 
tribute  for  his  many  valuable  suggestions. 


pay 
Anthony  W.  Margraff. 


INTERNATIONAL  EXCHANGE. 


Chapter  I. 

SUPERIOR  EARNING  FACTORS  IN  EUROPEAN 
OVER  AMERICAN  BANKING. 

TH  E  banking  profession  as  practised  in  the  United  States 
of  America,  compared  with  the  system  in  vogue  in 
European  countries,  especially  in  respect  to  the  superior 
earning  factors  of  the  trans -Atlantic  plan,  differs  vastly  in 
many  essential  points. 

A  study  of  their  manner  of  banking  will  reveal  many  able 
features  that  might  be  profitably  employed  by  American 
bankers  were  their  national  banking  laws  amended  to  permit 
national  banks  to  increase  their  field  of  operation.  The  very 
limited  scope  of  business,  authorized  under  the  powers  of  the 
National  Banking  Act,  has  caused  the  organization  of  numer- 
ous trust  companies,  operating  under  state  charters,  within  the 
last  few  years. 

The  system  of  central  and  branch  banking  has  been  the 
subject  recently  of  extended  and  general  discussion  by  bank- 
ers in  and  out  of  convention,  and  in  common  with  every 
radical  movement  whose  object  is  a  departure  from  long- 
established  lines  of  operation,  this  progression  toward  creating 
branch  banks  has  received  the  support  of  many  financiers  and 
at  the  same  time  has  met  with  the  criticisms  of  their  profes- 
sional brothers,  equally  competent. 

Conceding  even  the  arguments  adversely  presented,  admis- 
sion must  follow  that  this  system  as  employed  today  by  many 
of  the  foremost  banking  institutions  of  England,  Germany, 
France,  and  Canada  embraces  many  preeminent  advantages. 

The  following  tabulated  figures  show  the  capital,  surplus, 
deposits,  cash  means  and  annual  dividend  rate  of  ten  leading 
British  joint-stock  company  banks  as  compared  with  a  like 
number  of  prominent  New  York  City  banks : 

5 


International  Exchange. 


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8  International  Exchange. 

Ordinarily,  money  does  not  command  as  high  a  rate  of 
interest  in  Great  Britain  as  in  the  United  States,  and  yet  the 
above  tables  show  that  the  average  rate  of  dividend  disbursed 
by  the  mentioned  British  banks  was  i8  1/2  per  cent,  annually 
to  the  average  annual  rate  of  10  2/5  per  cent,  paid  to  the 
stockholders  of  the  New  York  City  banks. 

The  figures  disclose  also  that  the  higher  rate  of  dividend 
earned  by  the  British  banks  is  partially  due  to  lower  ratio 
of  stock  capitalization  to  deposits  and  reserve  as  compared 
with  the  figures  of  the  New  York  banks. 

The  chief  reason,  however,  for  the  better  dividend  is  in  the 
percentage  of  cash  means  against  deposits.     The  aggregate 
amount  of  deposits  held  by  the  banks  named  in  Great  Britain 
was  ;^305>826,977  =  (@  $5  per;^)  $1,529,131,885,  and  £^6,770,- 
l6i  =  $383,850,850  in  quick  assets  or  25^^  per  cent;  and 

The  New  York  banks  named  had  aggregate  deposits  of 
$629,380,779,  and  $300,786,172  in  cash  means  (quick  assets) 
or  approximately  47  79/100  per  cent  ; 

The  smaller  earning  capacity  of  the  New  York  banks  is 
hereby  forcibly  illustrated. 

The  Bank  of  England. 

A  banking  method  devised  to  permit  of  safely  employing 
so  large  a  percentage  of  deposits  in  an  earning  capacity 
compels  admiration ;  and  the  national  position  of  the  Bank  of 
England  to  the  various  English  banking  institutions  cooper- 
ates materially  to  that  efficiency.  The  Bank  of  England  is 
essentially  a  banker's  bank  wherein  are  deposited  the  cash 
reserve  of  the  English  banks.  The  proportion  per  cent,  of 
reserve  to  total  liabilities  including  Bank  Post  Bills  of  the 
Bank  of  England  averaged  49  6/10  per  cent,  for  the  ten 
years  beginning  in  1891  and  ending  in  1900. 

This  serves  to  illustrate  that  instead  of  the  individual 
London  banks  maintaining  a  large  cash  reserve,  this  end  is 
accomplished  by  the  Bank  of  England  in  its  capacity  as 
reserve  agent  for  the  individual  London  banks,  jointly  and 
severally. 


Superior  European  Factors.  9 

The  Bank  of  England  is  at  all  times  fully  prepared  to 
make  advances  against  satisfactory  collateral,  or  re -discount 
approved  acceptances  at  its  minimum  rate  of  discount. 
Facilities  of  this  nature  naturally  create  a  feeling  of  stability 
and  confidence  among  the  English  banking  fraternity,  and 
the  protection  and  assistance  at  their  command,  in  times  of 
emergency,  enables  them  to  safely  conduct  their  business  on 
a  smaller  cash  reserve  basis,  than  is  possible  by  bankers  in 
this  country  without  similar  protection. 

The  Open  Discount  Market. 

The  Open  Discount  Market  is  another  feature  unknown  to 
bankers  on  this  side  of  the  Atlantic.  Through  this  medium 
English  banks  are  in  a  position  to  employ  loanable  funds  by 
the  purchase  of  bankers'  or  prime  merchants'  acceptances 
and  hold  in  their  portfolio  until  maturity,  or  re-discount 
such  acceptances  in  the  open  market  at  any  time  cash  funds 
may  be  required. 

The  practice  of  re -discounting  paper  in  the  open  market 
is  not  only  customary  and  in  constant  operation,  but 
constitutes  one  of  the  important  branches  of  banking 
throughout  Europe.  In  London  there  are  numerous  discount 
houses  whose  specialty  is  to  discount  paper. 

There  are  various  reasons  why  the  custom  of  re -discounting 
bills,  as  in  vogue  by  European  bankers,  should  strongly 
commend  itself  to  the  American  banker,  who,  unfortunately, 
at  the  present  day,  is  not  offered  the  advantages  afforded  by 
that  system. 

In  the  American  States,  it  is  so  universal  to  hold  paper 
discounted  for  clients  until  maturity,  that  bankers  hesitate  to 
offer  paper  for  re -discount,  although  their  requirements  for 
cash  funds,  during  the  life  of  the  paper  discounted,  may 
become  very  acute.  Even  commercial  paper,  purchased 
from  brokers,  is  usually  held  by  the  purchasing  banker  until 
maturity,  and  a  re -sale  of  the  paper,  prior  to  maturity,  is 
resorted  to  reluctantly. 


10  International  Exchange. 

The  Acceptance  Account. 

In  addition  to  the  facilities  referred  to  whereby  trans- 
Atlantic  bankers  are  enabled  to  keep  a  much  larger  percentage 
of  their  deposits,  capital  and  surplus  employed,  than  bankers 
in  this  Country,  their  larger  earnings  are  due  also  to  the 
Acceptance  Account  being  a  source  of  revenue  that  is  entirely 
foreign  to  American  bankers.  American  national  banks  are 
prohibited  from  accepting  time  drafts,  consequently,  this 
branch  of  banking  is  unknown  in  America,  whereas  it  em- 
braces a  very  important  factor  of  European  banking  transac- 
tions of  a  highly  remunerative  nature.  The  commission 
charged  for  accepting  drafts,  depends  upon  the  life  of  the 
acceptance,  the  financial  responsibility  of  the  clients  on  whose 
account  acceptance  is  given  and  the  stability  of  the  collateral 
security,  if  any,  underlying  the  transaction. 

The  fundamental  principles  upon  which  banking  is  con- 
ducted in  the  European  continental  countries  are  practically 
identical  with  those  obtaining  in  England.  The  functions 
performed  by  the  Bank  of  England  in  its  dealings  with  the 
English  bankers  are  fulfilled  in 

Germany  by  the  Imperial  Reichsbank; 

France  by  the  Bank  of  France ; 

Holland  by  the  Netherland's  Bank;  and  in 

Belgium  by  the  Bank  of  Belgium. 

The  Giro  Conto  Transfer. 

The  Imperial  Reichsbank  of  Germany  has  branches  in 
every  important  city  throughout  the  German  Empire.  No 
interest  is  allowed  on  balances  by  this  Bank,  nevertheless,  it 
conducts  an  account  of  practically  every  bank  and  merchant 
of  standing  in  Germany,  owing  to  facilities  accorded  to  its 
depositors.  One  of  the  most  valuable  facilities  afforded  by  the 
Reichsbank  to  its  clients  is  the  gratuitous  transfer  of  money 
by  its  system  called  the  Giro  Conto  Transfer,  whereby  a  mer- 
chant in  Berlin  can  transfer  money  to,  let  us  assume,  a  firm 
in  Chemnitz. 


Superior  European  Factors.  ii 

The  operation  is  simplicity  itself.  The  Berlin  merchant 
deposits  with  the  Reichsbank  at  Berlin,  the  amount  he  wishes 
transferred  to  the  Chemnitz  firm.  He  receives  a  receipt  from 
the  Reichsbank  for  amount  deposited,  and  the  bank  merely 
instructs  its  branch  office,  at  Chemnitz,  by  mail,  to  transfer 
to  the  credit  of  the  account  of  the  Chemnitz  firm,  for  account 
of  the  Berlin  merchant,  the  required  amount  under  advice. 
The  entire  transaction  is  a  matter  of  simple  bookkeeping. 
Should  the  transfer  be  executed  by  telegraph,  a  fee  covering 
telegraphic  expense  is  exacted  of  remitter. 

Premium  or  Discount  on  Exchange  Unknown. 

As  money  can  be  transferred  in  this  manner  to  any  city  in 
Germany  where  a  branch  of  the  Reichsbank  is  located, 
premium  or  discount  on  exchange,  between  the  different 
German  cities,  as  for  example  in  this  Country  between  New 
York  and  Chicago,  is  unknown. 

A  directory  published  in  Germany  giving  the  names  and 
addresses  of  all  depositors  in  the  Reichsbank  throughout  the 
Empire  serves  the  purpose  of  ascertaining  the  names  of  its 
depositors,  and  whether,  or  not,  money  can  be  transferred  by 
the  aid  of  the  Giro  Conto  System. 

The  United  States  of  America  is  greatly  indebted  to  the 
banking  systems  of  Europe,  and,  particularly  with  respect  to 
the  discounting  of  bills  of  exchange,  we  must,  in  part 
attribute  our  steady  and  increased  growth  of  international 
commerce. 

Were  the  bankers  of  the  United  States  not  afforded  the 
facilities  of  discounting  in  the  foreign  money  markets  the 
bills  of  exchange  purchased  from  domestic  exporters, 
cis -Atlantic  bankers  would  soon  be  compelled  to  cease 
negotiating  this  class  of  paper  for  their  clients,  as  they  could 
not  afford  to  employ  the  vast  sums  of  money  required  were 
bills  to  be  held  until  their  maturity,  or  retired  prior  to  maturity 
at  the  pleasure  of  the  drawees. 


12  International  Exchange. 

Summary. 

The  salient  issue  presented  in  this  Chapter  may  be  summar- 
ized in  this  way :  were  the  earning  factors  mentioned  of  the 
European  system  incorporated  into  the  American  banking  plan 
would  not  those  active  factors  increase  the  American  dividend 
rate? 

A  comparison  of  the  declared  dividends  is  not  intended  to 
prove  the  relative  actual  productive  efficiency  of  the  individual 
London  and  New  York  banks  mentioned,  the  intention  being 
rather  to  show  that  the  English  features  tend  greatly  to  build 
up  dividends  for  English  banks. 

The  actual  net  profits  of  New  York  banks  no  doubt  go  to 
swell  the  surplus  fund  and  the  remainder  of  the  net  profits 
furnishes  the  declared  dividend;  and  that  the  actual  and 
declared  dividends  of  the  English  banks  equal  each  other 
may  or  may  not  be  true;  in  other  words,  the  respective  board 
of  directors  to  each  bank  dictates  what  per  cent,  dividend 
shall  be  paid  by  its  arbitrary  and  elective  action,  assuming 
such  action  of  course  to  be  within  the  law. 

The  National  Banking  Act. 

To  divert  for  a  moment  and  express  appreciation  for  the 
transformation  from  the  first  Bank  of  the  United  States  to 
the  present  national  banking  associations :  its  history  discloses 
in  its  early  development  the  system  of  political  banking  with 
its  offensive  branch  features  productive  of  wrecks  caused  by 
dishonest  officials  and  the  gradual  weeding  out  of  such  evils 
until  the  present  efficient  National  Banking  Act,  conceded 
the  best  body  of  banking  laws  Americans  have  enjoyed;  and 
justification  may  be  made  of  the  strictness  of  the  National 
Banking  Law  now  in  force  for  the  all'  important  protection  of 
the  depositors  and  stockholders  in  the  national  banks  of  the 
United  States  of  America. 


Chapter  II. 

THE    FOREIGN    DEPARTMENT. 

DURING  the  past  few  years,  through  diligent  and  persis- 
tent work,  The  Foreign  Department  has,  step  by  step, 
attained  high  eminence  in  the  banking  profession,  and  the 
gradually- increasing  views  disclose  larger  subject-matter 
and  an  ever- increasing  base  for  its  operations. 

Few  national  banks  comparatively  had  heretofore  Foreign 
Departments,  and  international  exchange  transactions  were 
generally  handled  by  New  York  private  banking  institutions 
that  made  a  specialty  of  this  class  of  business.  The  enormous 
and  steady  growth  of  our  American  foreign  trade  relations 
secured  for  those  private  bankers  an  immense  volume  of  busi- 
ness of  a  very  profitable  nature,  and  when  the  bankers 
throughout  the  country  began  to  realize  these  conditions, 
they,  one  by  one,  annexed  Foreign  Departments  to  their 
respective  institutions.  The  recognition  of  their  importance 
was  so  universal  that  we  find  today,  practically,  every  bank 
of  prominence  operating  Foreign  Departments  in  conjunction 
with  their  banking  business. 

The  exporters  and  importers  especially,  and  the  whole 
community  of  the  United  States  of  America  have  been  the 
beneficiaries  through  this  movement  of  commercial  expansion 
to  the  increased  facilities  for  the  administration  of  their 
requirements,  and  —  a  gain  of  far  greater  importance — the 
advantages  of  competition  created  by  a  broad  market. 

Competition  between  the  banks  in  their  eager  desire  to 
transact  business  enables  the  exporters  to  sell  their  foreign 
bills  of  exchange  at  a  higher  price,  and  the  importers  and  the 
general  public  to  purchase  their  drafts  at  a  lower  price  than 
formerly.  The  effect  upon  the  interests  of  the  bankers  may  be 
appropriately  termed  that  of  a  whipsaw,  and  the  struggle  will 
doubtless  continue  while  the  supply  of  Foreign  Departments 
exceeds  the  demand  of  business — ^just  the  same  as  competi- 
tion exists  in  the  desire  to  dispose  of  any  commodity  when  by 

13 


14  International  Exchange. 

a  condition  of  overproduction,  the  supply  as  compared  to 
consumption  exceeds  the  demand. 

The  business  outlook  on  that  basis  would  indeed  be  dis- 
couraging to  the  average  banking  official  and  might  have 
induced  him  ere  this  to  abandon  The  Foreign  Department, 
were  it  not  for  the  recognized  fact  that  there  are  manifold 
benefits,  direct  and  indirect,  accruing  to  the  bank  proper 
through  the  medium  of  this  department,  as  follows : 

The  Foreign  Department 

I.  Affords  facilities  to  the  general  clientage  of  the  bank 
to  transact  all  its  banking  business  with  the  bank,  thereby- 
avoiding  the  possibility  of  losing  a  profitable  account  that  is 
open  to  successful  solicitation  by  a  competitor; 

II.  Serves  as  a  valuable  auxiliary  through  the  medium  of 
advertisements  and  personal  invitation  to  attract  depositors ; 

III.  Commands  prominence  of  the  name  of  the  bank 
among  New  York  bankers,  by  whom  its  foreign  exchange 
is  purchased,  and  among  bankers  thoughout  the  entire  world, 
with  whom  accounts  are  kept,  and  by  whom  drafts  against 
its  Letters  of  Credit  are  negotiated; 

IV.  Practically  converts  the  bank  into  an  international 
banking  institution,  thereby  vastly  increasing  its  field  of  oper- 
ation, by  placing  it  in  close  touch  with  the  long- established 
monetary  centers  of  the  world,  whose  actions,  though  distant, 
are  closely  allied  to  the  interests  of  the  American  banker; 

V.  Establishes  a  bond  of  friendship  with  the  master  finan- 
ciers of  the  old  world  who,  periodically,  visit  their  American 
friends,  and  whose  opinions,  particularly,  covering  the  finan- 
cial outlook  of  the  United  States,  as  reflected  in  their  respec- 
tive countries,  constitute  a  source  of  information  of  very  great 
value  to  the  American  banker; 


The  Foreign  Department.  15 

VI.  Affords  the  bank  an  opportunity  of  placing  loans,  at 
remunerative  rates  of  interest,  in  the  European  money  mar- 
kets when  favorable  conditions  prevail,  by  the  purchase  of 
"Foreign  Bills  of  Exchange  as  an  Investment,"  or  permits 
the  bank  to  borrow  money  at  favorable  rates  in  the  money 
markets  of  the  world  by  issuing  "Finance  Bills" — banking 
features  employed  and  fully  outlined  and  explained  in  the 
chapters  devoted  to  those  operations;   and 

VII.  Places  the  bank  in  a  position  to  subscribe  for  portions 
of  European  national  loans,  as  foreign  correspondents  usually 
invite  their  American  friends  to  engage  in  underwriting  these 
loans,  thereby  affording  them  an  opportunity  of  participating 
in  the  profits  usually  arising  by  premiums  being  established 
for  the  issues  subsequent  to  allotment — witness  the  case  of 
the  recent  British  Transvaal  loan  that  netted  the  underwriters 
a  premium  or  profit  of  about  one  per  cent,  within  ten  days 
after  allotment. 

The  foregoing  are  merely  the  incidental  and  contingent  ben- 
efits accruing  to  the  bank  through  the  instrumentality  of  The 
Foreign  Department.  The  essential  object  of  The  Foreign 
Department,  however,  is  to  assist  in  the  earning  of  profits  by 
the  transaction  of  business  confined  within  its  province. 

The  Foreign  Department  should  not  experience  any  diffi- 
culty, when  managed  upon  proper  lines,  in  reaping  dividends, 
competition  notwithstanding,  and  should  earn  a  fair  rate  of 
interest  on  the  money  employed. 

And  what  constitutes  a  fair  rate  of  interest.?  Essentially, 
the  character  and  stability  of  the  protection  against  loss  and 
the  availability  of  liquidation  of  the  security  representing  the 
principal  underlying  the  investment  on  which  the  interest  is 
earned.  The  logical  hypothesis  of  which  is  set  forth  in  the 
following  comparison: 


i6  International  Exchange. 

While  the  rate  of  two  and  one-half  per  cent,  per  annum 
would  be  considered  a  fair  rate  of  interest  on  an  investment 
in  United  States  bonds,  being  absolute  in  security  and  availa- 
bility, six  per  cent,  per  annum  would  be  termed  a  fair  rate  of 
interest  on  an  investment  represented  by  corporation  bonds 
of  a  lesser  degree  of  security  and  convertibility. 

The  investment  of  funds  through  the  channels  of  a  conser- 
vatively-managed foreign  department  is  practically  analogous 
to  an  investment  in  the  highest  class  of  securities  when  the 
fundamental  collateral — hypothecated  by  the  drawers  of 
documentary  bills  of  exchange  as  a  protection  against  loss 
and  convertible  into  cash  by  a  process  of  liquidation  through 
sale  of  foreign  exchange — compares  favorably  with  bond 
investments  and  possesses  the  conspicuous  advantages  set 
forth  in  the  succeeding  pages. 

Collateral  Security, 
Hypothecated   by  Drawers   of  Documentary  Bills. 

The  merchandise — constituting  the  underlying  security  for 
documentary  bills  and  being  the  property  of  the  banker 
purchasing  the  respective  bills  of  exchange — is  comprised  of 
staple  commodities  such  as  grain,  flour,  tallow,  oleomargarine, 
cotton-seed  oil,  provisions,  etc.,  and  have  a  ready  market  in 
all  parts  of  the  world  and  can  be  readily  realized  upon  without 
sacrifice  in  case  of  emergency. 

Bills  of  lading  with  this  security  are  surrendered  only  by 
the  banker  on  actual  payment  of  the  accompanying  draft, 
or  upon  the  acceptance  of  the  draft  by  a  banker  or  merchant 
of  the  highest  standing,  so  the  purchase  of  documentary  bills 
of  exchange  in  reality,  is  practically,  the  equivalent  of  buying 
merchandise  of  exporters  for  resale  in  foreign  markets. 

An  additional  security  to  the  banker  is  the  financial 
responsibility  of  the  drawer  and  endorser,  if  any,  and  their 
continuing  liability  does  not  cease  until  payment  of  the  bill 
of  exchangee. 


The  Foreign  Department.  17 

Convertibility  Into  Cash. 

All  foreign  bills  of  exchange  except  documentary  payment 
bills  on  Great  Britain  are  discountable  in  foreign  money 
markets,  a  banking  feature  embodied  in  a  subsequent  Chap- 
ter, and  in  consequence  time  bills  can  be  treated  in  the  same 
manner  as  cash  remittances,  and  checked  against,  at  the 
pleasure  of  the  remitter, 

A  very  large  foreign  exchange  business  can  be  therefore 
conducted  on  a  comparatively  small  working  capital.  The 
elasticity  of  the  operations  confined  to  the  workings  of  The 
Foreign  Department  have  no  parallel  compared  with  banking 
as  practised  by  American  bankers  at  the  present  day. 

A  very  broad  foreign  market  has  been  established  by  the 
bankers  in  New  York  City,  and  for  that  reason,  bankers' 
checks  on  their  European  correspondents  can  at  all  normal 
times  be  sold  in  that  market  with  as  much  ease  and  dispatch 
as,  for  example,  the  sale  of  New  York  exchange  in  Chicago. 

Credit  balances — created  on  the  books  of  The  Foreign 
Department — in  the  hands  of  European  bankers  are  in  fact 
just  as  available  as  if  placed  in  the  custody  of  domestic 
correspondents. 

A  notable  and  salient  point  is  the  fact  that  the  purchase  of 
every  bill  of  exchange,  payable  in  European  countries,  is 
equivalent  to  a  purchase  of  gold,  because  all  of  these  countries 
are  now  on  a  gold  monetary  basis. 

While  in  times  of  quietude  that  feature  is  only  a  matter  of 
sentimental  value,  it  is  not  beyond  a  possibility  that  foreign 
exchange  bankers  may  again  experience  its  intrinsic  value  as 
exemplified  during  the  panic  of  the  year  1893,  when  American 
bankers  with  London  connections  imported  large  amounts  of 
gold  and  then  of  paramount  value. 

It  is  true  that  during  the  crisis  of  that  year,  bankers  may 
have  experienced  some  difficulty  in  selling  their  foreign 
exchange,  owing  to  the  great  demand  for  money  at  home, 
and  mistrust  in  general,  but  that  fact  did  not  cause  any 
embarrassment  but  on  the  contrary  enabled  them  to  obtain 

2 


i8  International  Exchange. 

at  that  time — gold — from  their  European  correspondents 
shipped  to  the  American  bankers  in  payment  of  foreign  bills 
of  exchange,  previously  remitted. 

Foreign  exchange  bankers  were,  at  that  time,  in  a  position 
to  secure  gold,  then  refused  even  to  holders  of  United  States 
government  bonds  when  there  was  no  market  for  any  bonds. 

The  writer's  recollection  of  these  established  facts  has 
prompted  him  to  venture  the  assertion  that  the  investment 
of  funds  through  the  channels  of  a  conservatively- managed 
Foreign  Department  is  practically  analogous  to  an  investment 
in  the  highest  class  of  securities  when  the  fundamental 
collateral — hypothecated  by  drawers  of  documentary  bills  of 
exchange  and  convertible  into  cash  —  does  not  suffer  by 
comparison  with  bond  investments,  and  on  the  contrary 
possesses  conspicuous  advantages. 


Chapter  III, 

FOREIGN  EXCHANGE. 

FOREIGN  Exchange  suggests,  very  likely,  to  those  who 
have  not  given  the  matter  attention,  a  ramification  of 
intricate  and  technical  international  banking  operations;  an 
examination,  however,  of  the  term  will  disclose  its  compara- 
tively simple  actions  and  its  freedom  from  such  ramification. 

It  is  true  that  this  subject  affords  a  broad  field  for  research 
and  study,  but  nothing  within-  '<-s  pages  is  at  all  mysterious 
or  incomprehensible  or  beyond  a  clear  understanding. 

In  many  of  its  essential  elements  "Foreign  Exchange" 
corresponds  to  "Domestic  Exchange,"  and  as  the  names 
imply,  the  foimer  treats  with  exchange  operations  of  an 
international  type,  while  the  latter  is  confined  to  exchange 
transactions  in  this  Country. 

Foreign  Exchange  is  bought  and  sold  by  the  banker  in 
like  manner  as  the  merchant  buys  and  sells  his  wares.  In 
its  tangible  shape,  Foreign  Exchange  is  an  evidence  of  indebt- 
edness represented  by  a  negotiable  instrument,  the  drawer  or 
maker  constituting  the  creditor,  the  drawee  the  debtor,  and 
title  thereto  is  vested  in  the  payee. 

The  indebtedness  underlying  foreign  bills  of  exchange  is 
created  in  various  ways:  it  may  be  issued  against  the  value 
of  merchandise  exported,  securities,  or  actual  cash  funds. 

The  major  portion  of  foreign  bills  of  exchange,  however, 
are  drawn  against  exports  of  commodities,  and  the  following 
tabulated  figures  by  the  Commercial  West,  Minneapolis,  from 
statistics  furnished  by  the  Bureau  of  Statistics  of  the 
Treasury  Department  at  Washington,  will  be  of  interest  and 
are  subjoined: 

The  aggregate  exports  for  the  fiscal  year  ending  June  30, 
1903,  were  $1,419,991,290;  and  the  aggregate  imports  for 
the  same  period  of  time  were  $1,025,619,127;  being  the 
highest  on  record  and  an  increase  of  $160,570,068  over  the 
previous  year. 

19 


20  International  Exchange. 

To  illustrate  the  phenomenal  growth  of  our  international 
commerce,  the  following  data  are  submitted: 

For  the  first  time  in  the  history  of  our  foreign  trade,  the 
imports  for  the  last  year  exceeded  $1,000,000,000;  prior  to 
1870,  the  total  was  less  than  half  that  amount;  and  in  1890, 
the  sum  reached  three-quarters  of  a  billion  dollars  in  value; 
and  now  for  the  first  time,  the  billion  dollar  line  has  been 
passed. 

The  volume  of  exports  shows  a  commensurate  expansion: 
in  the  twelve  months  ending  with  June,  1903,  exports  aggre- 
gated $1,419,991,290  against  $1,025,619,127  of  imports, 
showing  an  excess  of  exports  during  the  time  of  $394,372,163. 

Exports  never  reached  the  value  of  a  half  billion  dollars  in 
a  single  year  until  after  1870,  and  for  the  first  time  the 
three-quarters  of  a  billion  dollar  mark  was  passed  in  1880; 
and  in  1892,  the  value  exceeded  $1,000,000,000,  and  now  the 
figures  for  the  last  fiscal  year  present  the  grand  total 
amounting  to  the  vast  sum  of  $1,419,991,290. 

Were  exports  and  imports  of  commodities  the  only  factors 
to  be  taken  into  consideration  in  determining  the  American 
international  trade  balance,  the  Nation  would  have  a  credit 
balance  of  $394,372,163  at  the  close  of  the  last  fiscal  year; 
this,  however,  is  not  the  case.  The  figures  tabulated  by  the 
Treasury  Department  as  shown  above  do  not  include  the 
movements  of  gold  and  silver,  nor  is  the  value  of  the  immense 
volume  of  securities  incorporated.  Securities  are  constantly 
undergoing  a  change  of  ownership,  the  sales  and  purchases 
for  foreign  account  comprising  a  very  important  factor  in 
foreign  exchange  operations  and  whereof  no  accurate  record 
can  be  formulated. 

The  expenditures  of  Americans  while  travelling  abroad, 
and  the  freight  charges  paid  by  the  United  States  to 
European  ship-owners  for  transportation  of  foreign  commerce, 
and  the  large  loans  negotiated  abroad  through  the  medium 
of  "Finance  Bills,"  all  tend  to  swell  the  bulk  of  foreign 
exchange  transactions,  and  render  any  approximation  of  the 


Foreign  Exchange.  21 

true  proportions  of  the  international  trade  balance  of  the 
United  States  of  America  impossible. 

Of  the  total  amount  of  $1,419,991,290  of  exports  for  the 
last  fiscal  year,  it  is  estimated  that  Chicago  and  the  territory 
tributary  thereto  furnished  one- third,  about  $500,000,000, 
represented  chiefly  by  foreign  bills  of  exchange  drawn  by  the 
meat  packing  industries  and  grain  exporters. 

The  benefits  to  be  derived  in  participating  in  American 
foreign  trade  relations  will  doubtless  induce  every  wide- 
awake bank  to  enter  the  field  for  the  purchase  and  sale  of 
foreign  exchange,  and  as  a  matter  of  fact,  few  banks  remain 
whose  officials  have  not  already  recognized  the  necessity  of 
conducting  Foreign  Departments  to  keep  abreast  with  the 
times  and  to  share  in  the  profits  and  advantages  incidental  to 
this  branch  of  the  banking  profession,  promising  to  assume 
even  larger  proportions  in  the  future  than  in  the  past. 


Chapter  IV. 

DESCRIPTION  OF  BILLS  AND  COLLATERAL, 
with  General  Instructions  for  their  Issue. 

A  GENERAL  description  of  all  foreign  bills  of  exchange 
that  the  banker  is  likely  to  be  called  upon  to  purchase, 
in  the  course  of  business,  follows.  Documentary  bills  drawn 
on  England,  Germany,  France,  Holland,  Belgium  and  other 
countries,  at  sight,  or  at  three,  ten,  thirty,  sixty  or  ninety 
days'  sight,  with  relative  documents  to  be  surrendered  on 
payment  or  upon  acceptance  according  to  the  names  of  the 
drawees,  and  the  instructions  of  the  drawers,  irrespective  of 
the  country  where  drawn,  are  exactly  alike  in  each  case;  and 
it  will  suffice  to  treat  one  bill — the  same  principle  applying 
— in  each  class. 

Consider  a  sixty  days'  sight  documentary  bill  on  British 
merchants,  the  attached  documents  to  be  surrendered  to 
drawees  on  payment  of  the  respective  bill,  at  maturity, 
or  prior  to  maturity,  under  rebate,  at  the  retirement  rate  of 
discount  as  explained  in  Chapter  XVII. 

The  following  is  a  specimen  form  of  bills  of  that  class: 

Specimen  Documentary  Bill,  Documents  on  Payment. 

£ Hammond,  Indiana, ,  19 — . 

Sixty  days  after  sight  of  this  First  of  Exchange  (second 

unpaid),  pay  to  the  order  of ,  the  sum  of 

Sterling.     Value  received,  and  charge  to  the  account  of 

Hammond  Packing  Company, 

To  John  McNairn  &  Co.,  By . 

No. .         Glasgow,  Scotland. 

The  following  shipping  documents  accompany  such  bills: 

Bills  of  Lading. 

Export,  generally  termed  "through"  bills  of  lading  are 
issued   by   railroad   companies   carrying   merchandise   from 

22 


Bills  of  Lading.  23 

interior  points  to  the  seaboard  in  conjunction  with  steamship 
lines  carrying  merchandise  from  seaboard  to  destination 
abroad. 

Bills  of  lading  should  always  be  made  out  to  the  order  of 
the  shippers,  and  by  them  endorsed  in  blank,  so  that  the 
title  to  the  underlying  merchandise  is  an  unimpaired  lien  in 
the  possession  of  the  holder  of  the  lading.  Documentary 
bills,  having  as  their  security  bills  of  lading  attached,  to  the 
order  of  the  consignees,  should  not  be  accepted,  and  observe 
that  holders  of  such  ladings  will  not  have  a  lien  on  the 
merchandise  that  could  be  obtained  by  consignees  without 
the  presentation  and  surrender  of  ladings  when  the  goods  are 
consigned  direct  to  their  order.  Of  course,  lading  issued 
to  the  order  of  the  banks  purchasing  the  appertaining  bills  of 
exchange,  and  then  endorsed  in  blank  by  them,  would  convey 
the  possession  of  the  merchandise  to  the  holder  of  the  lading, 
but  this  course  would  compel  the  exporter  or  drawer  to  sell 
his  exchange  to  the  bank  named  in  the  lading,  and  would  not 
give  him  the  benefit  of  selling  his  bill  to  the  highest  bidder. 
Bills  of  lading  are  issued  in  two  or  three  parts  (duplicate  or 
triplicate)  the  exact  number  of  copies  issued  always  appearing 
on  the  face  of  the  lading. 

Great  care  should  be  taken  in  demanding  the  full  set  of 
ladings  from  the  drawers  of  appertaining  bills  of  exchange, 
and  so  secure  complete  control  and  ownership  of  merchandise 
covered  by  the  lading. 

Grain  is  shipped  occasionally  via  the  Great  Lakes  and 
Welland  Canal  to  Montreal  or  Quebec  covered  by  inland 
ladings  to  those  cities  and  there  to  be  exchanged  (in  lieu  of 
inland  ladings)  for  ocean  ladings  issued  by  steamship  lines. 

Live  stock  from  interior  points  is  never  exported  on  export 
or  through  bills  of  lading,  but  is  covered  by  inland  railroad 
ladings  that  are  exchanged  at  seaboard  for  ocean  ladings 
because  steamship  lines  insist  on  careful  inspection  of  live 
stock  to  be  carried  by  them,  before  issuing  ladings  covering 
shipments. 


24  International  Exchange. 

Hypothecation  Paper. 

Hypothecation  Paper  authorizes  the  banker  purchasing 
foreign  bills  of  exchange  to  sell  to  best  advantage  the 
merchandise  securing  any  bill  of  exchange  that  has  been 
refused  payment,  and  such  document  was,  in  former  days, 
attached  by  the  drawers  to  each  and  every  bill  of  exchange. 
The  clerical  labor  and  postage  involved  have,  in  recent  years, 
been  obviated  by  the  prior  execution  and  delivery  of  a 
General  Hypothecation  Power  to  the  banker  so  constructed  as 
to  apply  to  all  bills  of  exchange  issued  and  sold  from  time 
to  time  to  him  by  his  drawer. 

A  specimen  form  of  the  modern  General  Hypothecation 
Power  is  subjoined: 

Bills  of  Exchange. 
To  The  National  Bank  of  the  Republic, 
Chicago. 

7!?  the  Cashier: — Anticipating  all  future  sales  to  you  of 
bills  of  exchange  with  shipping  documents  for  goods  and 
produce  attached  as  collateral  security  and  held  by  you  for 
their  due  payment,  we  agree  as  follows,  to -wit: 

You  may  insure  any  goods  and  produce  forming  the 
collateral  security  (if  not  already  insured,  and  the  policy  or 
policies  deposited  in  your  hands),  from  sea  risk,  including 
loss  by  capture,  and  from  fire  on  shore,  and  add  the  premiums 
and  expense  thereof,  to  the  amount  chargeable  to  said  bills, 
but  it  shall  not  be  imperative  upon  you  to  effect  any 
insurance; 

You  may  sell  any  portion  of  the  goods  and  produce  afore- 
said by  you  deemed  necessary  for  payment  of  such  premiums, 
expenses,  freight  and  duties,  take  such  measures  generally, 
make  such  charges  for  commission,  and  be  accountable  in 
such  manner,  and  not  further  or  otherwise,  as  in  ordinary 
cases  between  merchant  and  his  correspondent; 

You  may  take  conditional  acceptance  to  such  bills  to  the 
effect  that  on  payment,  thereof,  at  maturity,  or  under 
discount,  the  documents  handed  to  you  as  collateral  security 


General  Hypothecation  Power.  25 

shall  be  delivered  to  the  acceptors,  and  this  shall  extend  to 
acceptances  for  honor; 

In  case  default  be  made  in  acceptance  of  the  said  bills  on 
presentation,  we  agree  immediately,  on  receiving  notice  from 
you  that  you  have  been  advised  by  telegraph,  or  otherwise, 
of  such  non-acceptance,  and  without  waiting  for,  or  requiring 
the  protest  of  said  bills,  to  pay  you  the  amount  thereof  with 
all  charges  of  every  description  incurred  by  you  in  conse- 
quence of  such  non-acceptance,  or  give  you  satisfactory 
margin  in  cash  or  securities,  all  in  addition  to  your  possession 
in  the  United  Kingdom  or  elsewhere  of  the  goods  and  produce 
securing  said  bills,  or  the  documents  therefor;  and  we  further 
agree  that  your  account  of  the  disbursements,  commission 
and  charges  so  incurred  shall  be  received  by  us  as  sufficient 
and  final  evidence  thereof; 

In  case  default  be  made  in  acceptance  or  payment  of  any 
of  the  said  bills,  or  if  the  drawees  or  acceptors  should  suspend 
payment,  or  be  adjudicated  bankrupt,  or  execute  any  deed  of 
arrangement,  composition,  or  inspectorship,  or  take  any  other 
step  whatsoever  toward  effecting  a  compromise  or  arrange- 
ment with  their  creditors  during  the  currency  of  the  said  bills, 
you  may  at  any  time  after  any  of  the  aforesaid  events  taking 
place,  sell  the  goods  or  any  part  thereof,  without  notice  to  or 
the  concurrence  of  any  person  whomsoever,  without  waiting 
for  the  maturity  of  the  said  bills,  and  either  by  public  auction 
or  private  sale,  and  you  may  act  in  all  respects  as  if  you  had 
been  the  direct  consignee  of  the  goods  and  produce,  charging 
such  commission  as  is  usual  between  a  merchant  and  his 
correspondent  in  ordinary  cases,  and  shall  apply  the  net 
proceeds  of  any  sale,  after  deducting  any  payment  under  the 
powers  herein  contained,  with  interest  thereon,  and  the  usual 
commission  and  charges,  in  payment  of  the  bills  with  interest, 
reexchange  and  other  charges,  and  may  apply  the  balance, 
if  any,  toward  the  liquidation  of  any  debt  and  liability  of 
ours  to  you,  whether  or  not  the  same  be  then  payable  or 
ascertained,  it  being  hereby  agreed  that  the  goods  them- 
selves, until  sale,  shall  be  liable  for  and  be  charged  with  the 


26  International  Exchange. 

payment  of  all  such  bills,  with  commission,  interest, 
reexchange  and  other  charges,  debts  and  liabilities;  and  we 
agree  that  all  account  sales  and  accounts  current  furnished 
by  you,  in  respect  of  the  said  goods  and  produce,  shall  be 
received  by  us  as  sufficient  and  final  evidence  of  their 
accuracy; 

We  further  authorize  you,  in  case  the  net  proceeds  of  the 
sale  of  such  goods  shall  be  insufficient  to  pay  the  amount  of 
the  said  bills,  with  disbursements,  interest,  reexchange  and 
charges,  to  draw  upon  us  at  the  exchange  of  the  day  for  the 
amount  of  such  deficiency,  and  we  engage  to  honor  such 
drafts  on  presentation,  or  to  pay  you  the  amount  of  such 
deficiency  when  notified  of  the  amount ; 

In  case  the  aforesaid  Power  of  Sale  shall  not  have  arisen 
during  the  currency  of  the  said  bills,  you  may  accept  payment 
from  the  drawees  or  acceptors,  thereof,  and  on  payment, 
deliver  the  said  bills  of  lading  and  shipping  documents  to 
such  drawees  or  acceptors ; 

In  case  the  drawees  or  acceptors  should  wish  to  secure 
delivery  of  any  portion  of  the  goods  held  as  collateral  security 
for  the  said  bills  before  maturity  thereof,  you  are  authorized 
(but  not  so  as  to  be  binding  on  you)  to  make  such  partial 
deliveries  on  receiving  payment  of  a  proportionate  part  of 
the  said  bills; 

The  said  delivery  to  you  of  the  collateral  securities  afore- 
said shall  not  prejudice  any  of  your  rights  in  and  to  said  bills 
in  case  of  dishonor,  nor  shall  any  proceedings  taken  on  said 
bills  prejudicially  affect  your  title  to  the  said  securities; 

All  rights,  powers  and  authorities  hereby  given  you  shall 
extend  to  and  may  be  exercised  by  the  holders,  for  the  time 
being,  of  the  said  bills  and  shipping  documents; 

It  is  understood  that  in  the  event  of  bills  being  paid  under 
discount,  rebate  of  interest  shall  be  allowed  as  follows: 

One-half  per  cent,  per  annum  in  addition  to  the  advertised 
rate  of  interest  for  short  deposits  allowed  by  the  leading 
London  joint -stock  banks  if  the  bills  are  taken  up  in  the 
United  Kingdom  of  Great  Britain  and  Ireland ;  and 


Marine  Insurance.  27 

The  current  minimum  rate  of  discount  of  the  national 
banks  of  France,  Italy,  Belgium  and  Germany,  respectively, 
if  taken  up  respectively  in  those  countries. 

Chicago,  Illinois,  October  i,  1903. 


Certificates  of  Marine  Insurance. 

The  collateral  merchandise  attached  to  foreign  bills  of 
exchange  should  be  fully  covered  by  marine  insurance,  either 
by  the  drawers  or  the  drawees  of  the  respective  drafts. 

The  evidence  of  the  insurance,  when  effected  by  the 
drawers,  is  represented  by  the  Insurance  Certificate  and  should 
accompany  the  draft.  These  certificates  are  issued  by  the 
exporters  under  open  policies  of  insurance  issued  by  the 
various  marine  insurance  companies,  one  copy  of  the  policy 
is  retained  by  the  company  and  one  copy  remains  in  the 
possession  of  the  exporters  to  whom  the  policy  was  issued. 
This  method  of  placing  marine  insurance  risks  simplifies 
matters  very  much:  the  certificates  are  issued  without  delay 
by  the  exporters  and  by  them  merely  advised  to  the 
companies,  their  premiums  being  paid  periodically. 

Insurance  certificates,  like  bills  of  lading,  should  always 
be  made  out  to  the  order  of  the  shippers  (or  drawers)  and  by 
them  endorsed  in  blank,  so  that  the  loss,  if  any,  may  be 
collected  from  the  insurance  company  by  the  holder  of  the 
certificate. 

The  amount  insured  should  cover  the  approximate  equiva- 
lent of  the  relative  bill  of  exchange,  and  in  many  instances, 
exporters  place  insurance  for  an  amount  in  excess  of  invoice 
value  of  appertaining  merchandise  to  be  protected  for  the 
profit  on  the  transaction,  as  well  as  the  intrinsic  value  of  the 
goods,  in  the  event  of  loss. 

Frequently,  merchandise,  covered  by  bills  of  exchange,  is 
insured  against  marine  loss  by  the  purchasers  abroad  or  the 
drawees  of  the  drafts,  as  they  may  be  in  a  position  to  place 
the  risks  at  lower  premium,  then  no  certificate  of  insurance 


28  International  Exchange. 

will  accompany  the  respective  draft,  but  a  written  statement 
executed  by  the  shippers  or  drawers  reading  Insurance 
Effected  Abroad  should  in  such  cases  be  attached  to  the  draft. 
Insurance  certificates  are  not  necessary  to  cover  inland 
risks  because  railroad  companies  as  common  carriers  are 
liable  for  any  loss  sustained  while  the  merchandise  remains 
in  their  custody  for  transportation  from  interior  points  to 
seaboard  and  so  expressed  in  their  bills  of  lading. 

Shippers*  Invoice. 

The  major  portion  of  documentary  bills  of  exchange  have 
attached  to  them  a  shipper's  invoice,  giving  the  price  for  the 
merchandise  sold,  the  gross  and  net  weights,  incidental 
expenses,  such  as  freight,  insurance,  etc.,  (if  same  are  to  be 
paid  by  purchaser),  terms  of  sale,  etc.  This  document,  how- 
ever, is  not  essential  to  the  complete  bill  of  exchange  and 
may  be  forwarded  direct  to  the  purchaser  or  drawee  by  the 
exporter,  or,  as  in  many  instances,  may  be  attached  to  the 
draft  in  a  sealed  envelope  addressed  to  the  purchaser,  to 
avoid  publicity. 

The  question  may  be  asked — How  is  the  purchasing 
banker  enabled  to  ascertain  that  the  amount  of  the  foreign 
bill  of  exchange  bought  by  him  is  not  drawn  for  an  amount 
in  excess  of  the  invoice  value  when  no  open  invoice  is  attached 
to  the  draft  for  his  guidance.?  The  reply  is  that  the  invoice 
may  be  of  no  value  when  given  by  a  dishonest  exporter  who 
may  bill  the  goods  as  he  sees  fit  possibly  to  mislead  his 
banker. 

The  banker  may  verify  the  amount  of  drafts  issued  against 
any  shipment  by  examination  of  the  relative  bill  of  lading, 
ascertain  the  description  of  the  merchandise  shipped  and 
compute  the  value  by  applying  the  market  price  of  the 
commodity  as  quoted  on  the  various  exchanges  or  obtain  the 
current  quotations  for  the  goods  shipped  from  other  dis- 
interested clients  pursuing  the  same  business. 

We  emphatically  conclude  that  foreign  bills  of  exchange 
with  ladings   are  better  with  than  without  the  good  mora\ 


Shipping  Documents. 


29 


standing  of  the  drawers,  and  that  literally  "A  word  (without) 
to  the  wise  is  sufficient." 

Inspection  Certificates,  Weight  Certificates,  and 
Consular  Certificates. 

Besides  the  foregoing  documents:  documentary  foreign 
bills  of  exchange — drafts  drawn  against  shipments  of  beef 
and  pork  meats  usually  are  accompanied  by  government 
certificates  of  inspection,*  also,  when  requested,  by  board  of 
trade  official  inspection  and  weight  certificates. 

Supplementary  to  the  above,  foreign  bills  of  exchange 
covering  shipments  of  other  commodities  must  be  accom- 
panied by  documents  as  specified  below: 


DRAFTS  ON 

GOODS : 

Germany: 

Casings, 

Hair, 

Bones, 

Russia: 

Casings, 

Italy: 

Meats, 

Hair,  Hides, 

Hoofs  and  Lard 

HoUand: 

Casings  and 

Bladders, 

Hair, 

Belgium: 

Casings, 

Hair, 

Japan: 

Soap,  Hides, 

Feathers,  etc. 

Norway  and 

)  Oleo  Oil, 

Sweden: 

)  Neutral  Lard, 

*  Frequently  Inspection  Certiflcat 
merchandise. 

DOCUMENTS    REQUIRED: 

Certificate  of  Origin. 
Consular  Certificate. 
Consular  Certificate  and 
Government  Inspection  Certificate. 

Consular  Certificate  and 
Government  Inspection  Certificate. 

Government  Inspection  Certificate, 
Consular  Certificate. 

Consular  Certificate  and 
Government  Inspection  Certificate, 
Consular  Certificate. 

Certificate  of  Origin. 
Consular  Certificate. 

Consular  Certificate. 

I  Certificate  of  Origin  and 

'  Government  Inspection  Certificate. 


Chapter  V. 

FACTORS  AND  CONDITIONS  INFLUENCING 
FLUCTUATIONS  IN  EXCHANGE  RATES. 

THERE  is  no  commodity  so  sensitive  to  fluctuations 
in  price  as  Foreign  Exchange,  and  that  fact  accounts 
for  the  constantly  varying  quotations. 

Notwithstanding  the  instability  of  value,  fluctuations  can 
always  be  attributed  to  some  logical  reason,  therefore,  a 
banker  ambitious  to  become  preeminently  successful  in  his 
field  of  operations  will  not  content  himself  by  merely  being 
in  touch  with  the  current  market  quotations  but  will  analyze 
the  why  and  wherefore  of  every  material  advance  or  decline 
in  price. 

The  merchant  who  confines  his  lines  of  operations  upon 
established  facts,  thereby  buying  or  selling  his  wares  upon  a 
basis  of  valuation  adjusted  to  conditions  or  circumstances 
that  have  already  transpired  is  never  so  successful  as  the 
merchant  who  has  the  perspicacity  to  anticipate  these  con- 
ditions, thereby  enabling  him  to  compute  or  discount  the 
probable  effect  upon  the  market,  and  the  ability  to  do  so, 
should  in  no  wise  be  characterized  as  speculative,  but  should 
earn  the  coveted  term  of  "a  business  man  of  practical 
experience." 

Just  so  with  the  banker,  the  way  this  knowledge  can  be 
acquired  is  only  through  conscientious  and  close  application 
to  a  study  of  the  various  factors  that  govern  the  vacillating 
quotations  for  Foreign  Exchange. 

That  the  natural  law  of  supply  and  demand  is  the  f unda> 
mental  basis  of  value  for  every  commodity  is  axiomatic. 

We  must  next  determine  the  conditions  creating  the  supply 
and  demand  as  they  are  the  direct  causes  of  fluctuations  in 
value. 

30 


When  Exchange  Rates  Depressed.  31 

Conditions  Creating  an  Abnormal  Supply  of  Foreign 

Bills  of  Exchange  and  Having  the  Natural 

Tendency  to  Depress  Prices: 

I.  Drafts  drawn  against  the  exportation  of  cotton  consti- 
tutes one  of  the  principal  sources  of  supply  of  foreign  bills 
of  exchange;  wheat,  corn  and  other  cereals  also  contribute 
largely  to  this  supply; 

Those  exports  are  principally  made  during  the  months  of 
August,  September,  October  and  November,  and  at  that 
period  of  the  year,  foreign  exchange  rates  are  invariably 
lower  than  during  any  other  time; 

II.  Heavy  purchases  of  American  securities  by  European 
houses  on  the  New  York  Stock  Exchange,  or  from  bankers 
direct,  also  create  unexpected  abnormal  supply  of  bills  as 
the  payment  for  the  cost  of  these  securities  is  usually  obtained 
by  issuing  drafts  upon  the  purchasers  that  are  sold  in  the 
open  market; 

III.  High  interest  rates  in  New  York  City  for  money  is 
another  factor  that  furnishes  abnormal  supplies  of  exchange 
for  the  reason  that  bankers  having  international  relations 
withdraw  their  balances  held  by  European  correspondents 
for  employment  at  home,  by  checking  upon  them  to  the 
extent  of  their  credit  balances,  or  by  the  issuance  of 
"Finance  Bills"  drawn  at  sixty  or  ninety  days'  sight  against 
loans  negotiated  with  their  foreign  friends. 


32  International  Exchange. 

Conditions  Creating  an  Abnormal  Demand  for  Foreign 

Bills  of  Exchange  and  Having  the  Natural 

Tendency  to  Advance  Prices: 

I.  Subscriptions  by  American  bankers  and  capitalists  for 
European  government  bonds,  or  other  securities,  and  paid 
for  by  checks  on  foreign  countries ; 

I I.  Amounts  required  to  liquidate  maturing  loans  created 
by  the  issuance  of  "Finance  Bills"  drawn  at  sixty  or  ninety 
days'  sight  on  European  correspondents; 

III.  Sales  of  American  securities  on  the  New  York  Stock 
Exchange  (or  to  bankers  direct)  by  foreign  investors,  and 
paid  for  by  remittances  drawn  on  foreign  countries. 

Heavy  Demand  for  Bankers'  Bills. 

A  scarcity  of  documentary  foreign  bills  of  exchange  (at  a 
time  when  documentary  bills  are  generally  in  abundant 
supply) — consequent  upon  a  short  crop  or  increased 
demand  for  home  consumption  of  the  commodities  that  other- 
wise would  have  constituted  the  underlying  shipments  for 
export — may  derange  the  prices  for  exchange  during  the 
entire  season  by  creating  a  heavy  demand  for  Bankers' 
Bills  to  meet  commitments  or  requirements  abroad,  when 
their  liquidation  had  been  planned  by  the  purchase  in  due 
course  of  time  of  documentary  bills. 


Foreign  Exchange  World  Wide.  33 


Gold  Exports  Temporarily  Checked. 

The  foreign  exchange  market  is  too  broad,  and  contingent 
upon  too  many  factors  to  permit  of  successful  "manipulation" 
of  quotations.  This  fact,  however,  might  not  deter  a  very 
prominent  international  banking  house  from  attempting  to 
prevent  Gold  Exports  temporarily,  by  offering  to  sell  large 
amounts  of  Sterling  checks  at  a  time  when  the  price  is 
hovering  around  the  export  rate,  when  it  might  be  heavily 
"long"  on  stock  deals,  hoping  in  that  way  to  liquidate  its 
stock  transactions  before  the  stock  market  had  been  weak- 
ened by  gold  exports  that  generally  bearishly  affect  stock 
values.  The  foregoing  operation  might  result  in  a  loss  on 
the  exchange  transaction,  but  that  loss  would  be  more  than 
offset  by  the  profit  on  the  stock  deals. 


The  principal  elements  having  a  direct  bearing  upon  the 
values  of  foreign  exchanges  have  been  enumerated,  and  the 
indirect  or  circuitous  factors  governing  the  fluctuations  of 
prices  for  the  continental  exchanges  are  fully  discussed  in 
Chapter  XXVI,  on  "Arbitrage  Transactions." 


Chapter  VI. 

FINANCE  BILLS. 

FINANCE  Bills  constitute  one  of  the  most  important 
features  of  international  banking  operations  and  in 
consequence  command  paramount  attention.  Indeed,  the 
immense  development  of  American  industries  within  the 
last  decade  was  accomplished  through  the  expenditure  of 
enormous  sums  of  money  raised  principally  by  American 
Finance  Bills. 

The  millions  and  millions  of  dollars  thus  secured  have 
been  expended  by  railroad  companies  and  other  corporations 
in  the  improvement  of  their  respective  lines,  rolling  stock 
and  manufacturing  plants. 

The  millions  thus  spent  are  reflected  by  the  increased 
capitalization  represented  by  the  stock  and  bond  obligations 
of  those  companies  and  corporations.  And  while  it  is  true 
that  a  very  large  percentage  of  these  securities  were  imme- 
diately purchased  for  investment  by  American  institutions 
and  capitalists,  still,  it  can  not  be  denied  that  European 
bankers,  particularly  English,  assisted  us,  very  materially, 
in  financing  these  gigantic  deals,  by  the  outright  purchases 
of  these  securities  for  investment,  or  by  the  negotiation  of 
loans,  secured  by  the  hypothecation  of  the  various  new 
issues  of  stocks  and  bonds. 

To  give  an  idea  of  the  vast  amount  of  money  borrowed 
by  American  bankers  from  the  European  bankers,  let  us 
mention  in  this  connection  that  the  aggregate  amount  of 
outstanding  Finance  Bills  representing  our  indebtedness  for 
loans  of  this  nature,  was,  at  the  beginning  of  the  year  1903, 
approximately,  estimated  at  from  three  hundred  to  five 
hundred  millions  of  dollars.*  It  is  a  very  difficult  task, 
especially  for  an  American  banker,  to  accurately  estimate 
the  amount,  as  the  Finance  Bills  are  drawn  by  so  many 

*The  outstanding  American  Finance  Bills  have  been  materially  reduced  during 
the  current  ye^r. 

34 


The  American  Finance  Bill.  35 

different  bankers,  and  are  not  necessarily  placed  upon  the 
market  for  sale  in  their  original  form,  but  are  converted  into 
checks  and  demand  drafts  by  a  process  to  be  elucidated 
further  on,  consequently,  their  identification  is  concealed 
and  no  data  can  be  tabulated  in  America  as  a  guidance  of 
the  amount  issued. 

The  London  banking  institutions  are  designated  and 
accept  as  drawees  the  greatest  number  of  Finance  Bills,  and 
thereby  the  position  of  the  English  banker  is  generally 
greatly  facilitated  in  arriving  at  estimates.  The  approximate 
amounts  of  Finance  Bills  just  mentioned  were  furnished  the 
writer  during  personal  interviews,  early  in  the  year  1903, 
with  the  Manager  of  one  of  the  foremost  London  discount 
houses,  and  with  a  Director  of  one  of  the  largest  German 
banking  institutions  located  in  London.  An  astonishing  fact, 
and  one  that  can  not  be  appreciated  too  highly  by  every 
American  citizen,  was  imparted  to  the  author  by  the  said 
Director:  "That  the  American  Finance  Bill  possesses  the 
peculiar  distinction  of  being  the  only  bill  of  its  type  that  can 
be  discounted  in  the  English  money  market,"  adding  in  a 
jesting  manner,  "and  the  reason  for  this  was  due  to  the  odor 
of  freshness  and  security  with  which  the  American  Finance 
Bill  becomes  permeated  during  its  trans-Atlantic  voyage." 

The  credit  enjoyed  by  the  American  nation  in  England  is 
gratilying,  and  speaks  well  of  the  integrity,  business  acumen 
and  fidelity  with  which  the  obligations  and  commitments  of 
American  bankers  have  been  discharged  to  have  fostered 
this  confidence  and  good-will. 

The  American  Finance  Bill. 

We  proceed  to  explain  the  manner  in  which  these  Bills  are 
drawn,  the  purpose  of  issue,  and  the  advantages  accruing  to 
the  drawers  and  the  drawees,  respectively: 

The  Bills  are  drawn  at  thirty,  sixty  or  ninety  days*  sight 
by  American  banking  institutions  upon  their  European 
correspondents.     They  are  not  necessarily  drawn  in  pounds 


36  International  Exchange. 

Sterling  upon  London  bankers,  but  may  be  issued  in  marks 
upon  German  bankers,  or  in  francs  upon  French  bankers. 
By  far  the  largest  portion  are  drawn  upon  London,  and  we 
will  confine  our  analysis  to  the  Sterling  Finance  Bill. 

These  bills  are  usually  covered  by  collateral  security  in  the 
form  of  stocks  and  /  or  bonds  Hsted  on  the  New  York  Stock 
Exchange  so  that  in  case  of  need,  the  collateral  can  be  readily 
realized  upon  without  sacrifice. 

The  factor  of  security  is  purely  a  matter  of  negotiation 
between  the  drawers  and  drawees  (acceptors)  of  the  Bills; 
thus  any  good  collateral  will  be  acceptable  to  the  drawees, 
and  in  many  instances  no  security  may  be  required  where 
the  financial  standing  and  responsibility  of  the  drawers  are 
deemed  ample  protection  against  loss  by  the  drawees. 
Drawees  generally  charge  a  commission  for  their  obligations 
as  acceptors  of  Finance  Bills,  the  rates  per  cent,  varying  from 
1/16  to  %  according  to  the  tenor  of  the  bill,  the  financial 
responsibility  of  the  drawers,  the  character  of  the  underlying 
security  if  covered,  and  the  contingent  risk  if  no  collateral 
security  is  given. 

The  conditions  under  which  it  may  become  advantageous 
for  the  banker  to  put  out  Finance  Bills  are  quite  diversified, 
and  may  present  themselves  at  any  season  of  the  year.  To 
illustrate : 

High  Local  Interest  Rates  for  Money  against  Low 
Interest  Rates  in  London. 

It  frequently  occurs  that  money  is  in  brisk  demand  for 
home  use  at  six  per  cent,  (or  higher),  while  bills  can  be  dis- 
counted in  London  at,  say,  three  per  cent,  per  annum  (or 
less),  so  that,  notwithstanding  incidental  expenses,  such  as 
commission  and  British  Bill  Stamps,  to  which  Finance  Bills 
are  subject,  money  can  be  borrowed  in  London  and  employed 
at  home  at  a  profit,  as  will  be  seen  from  the  following  trans- 
action based  on  the  terms  and  conditions  following,  to-wit: 


Earning  Power  of  Finance  Bills.  37 


PER  CENT. 


Commission  charged  by  drawees  for  acceptance,      1/8 
British  Bill  Stamp  (i  shilling  100  pounds),         -         1/20 
Discount  rate  in  London,      -         -         -         -  3 

Local  interest  rate,  -----       6 

Tenor  of  Finance  Bill,  90  days'  sight; 
Amount  of  Bill  ;^io,ooo,  approximately  $50,000. 

Example  I. 

A  Finance  Bill,  issued  upon  these  terms,  would  give  the 
following  result,  for  three  months,  or  quarter  year: 

ANNUAL 
PER  CENT. 

Commission,  1/8%, -       1/2 

British  Bill  Stamp,  1/20%         -         .         -         .  1/5 

Discount  rate  on  bill  in  London,  -         -         -     3 

Total  cost  of  loan,      -         -         -         3  7/10 
or  $462.50  for  90  days  on  $50,000; 

Then,  if  the  drawer  of  this  Bill  could  employ  this  $50,000 
for  the  entire  ninety  days  by  making  a  time  loan  to  a  client, 
or  in  other  ways,  on  $50,000  for  90  days  at  six  per  cent,  there 
would  accrue  $750  in  interest,  yielding  a  net  profit  of  $287.50 
on  the  deal. 


There  is  only  one  element  that  might  operate  against  him, 
that  is,  he  might  be  compelled  to  pay  a  higher  price  for  his 
Sterling  drafts  required  for  the  liquidation  of  the  loan  at 
maturity  than  the  price  at  which  he  sold  his  Sterling  at  the 
time  the  Finance  Bill  was  issued.  To  eliminate  this  specu- 
lative feature,  the  conservative  banker  immediately  endeavors 
to  and  almost  invariably  can  purchase  the  requisite  amount 
of  London  checks  for  "cover"  during  the  life  of  the  Finance 
Bill  (ninety  days  from  date  of  issue)  as  explained  in  Chapter 
IX,  devoted  to  "Bills  of  Exchange  Bought  and  Sold  for 
Future  Delivery,"  so  that  we  can  say,  he  is  practically 
immune  from  loss  in  this  direction. 


38  International  Exchange. 

Another  circumstance  actuating  a  banker  to  issue  Finance 
Bills  can  be  attributed  to  an  advantageous  sale  of  checks  on 
London  at  a  time  and  under  propitious  circumstances — when 
"Short  Sales"  have  every  indication  of  profit  —  in  the  form 
of  obtaining  a  cheap  loan : 

No  time  or  condition  can  better  serve  to  illustrate  an 
operation  on  those  lines  than  exist  at  the  present  writing 
when  the  following  actual  conditions  are  prevailing: 


PER  CEMT. 


June  2,  1903 : 

Discount  rate  in  London,      -         .         -         -         31/4 
Commission  for  accepting  draft,  say,  -         -       1/8 

British  Bill  Stamp, 1/20 

Checks  on  London  are  selling,  at  $4,885^  per  £. 

On  that  basis,  the  parity  of  exchange  of  a  ninety  days' 
sight  Finance  Bill  would  be  $4.83^  per  pound  Sterling,  and 
is  obtained  in  the  following  manner: 

Discount,  93  days  at  Z%%  on  say  ;i^ioo  ($485)  $4.02 
Commission  for  accepting,  ^%,  -         -         .61 

British  Bill  Stamp,  1/20%         -         .         -  .24 

Total  charges  on  ;^  100,         -         -         -    $4.87 
or,  say,  4^  cents  per  pound  Sterling; 

Price  for  demand  drafts  or  checks  on  London,  $4.88^ 
Less  total  charges  on  90  days'  Finance  Bill 

for  conversion  into  checks,  by  discounting,        .04^ 

Parity  of  exchange  90  days'  bill,         -         -      $4.83^ 

the  rate  at  which  the  drawer  would  credit  his  London  corres- 
pondents upon  whom  the  Finance  Bills  are  drawn. 

Let  us  suppose  that  the  banker  has  issued  a  ;!^  10,000,  ninety 
days'  Finance  Bill,  as  above,  and  forwarded  to  his  discount 


Efficiency  of  American  Finance  Bills.        39 

correspondents  in  London  for  discount,  the  proceeds  to  be 
placed  to  the  credit  of  his  account,  and  has  simultaneously- 
drawn  there  against  his  check  on  London  for  ;^  10,000,  thus 
realizing  at  the  rate  of  $4.88i<J^,  or  $48,825  on  June  2,  the 
day  of  sale. 

The  Finance  Bill  will  be  accepted  to  mature  in  London 
about  September  15.  By  reference  to  Chapter  V,  it  will 
be  observed  that  there  is  always  an  abundance  of  document- 
ary exchange  in  the  market  in  September  owing  to  the 
export  movement  of  cotton,  grain,  etc.,  and  that  the  prices 
for  foreign  exchange  are  generally  lower  at  this  time 
than  at  any  other  period  of  the  year,  so  that  it  is  quite  safe 
to  assume  that  demand  drafts  can  be  purchased  for  "cover" 
at  maturity  of  the  Finance  Bill  for  delivery,  say,  September 
I  (fifteen  days  prior  to  maturity),  at  a  much  lower  price  than 
$4.883<(.  Bankers  are  so  positive  of  this  fact  that  they  are 
willing  to  sell  now  (June  2)  checks  on  London  deliverable  on 
September  i  at  $4.86^  per  pound  Sterling. 

Although  London  checks  could  probably  be  bought  on 
September  i  for  less  than  this  price,  let  us  assume  that  the 
drawer  of  the  "Finance  Bill"  desires  to  secure  cover  in 
advance  at  $4.86^  and  consummate  the  entire  transaction. 

Example  H. 
To   determine   what   the    loan   of    $48,825    (proceeds  of 
;^io,ooo)  for  90  days  has  cost,  we  figure: 

Charges  for  converting  Finance  Bill  into 

London  checks,   as   shown   above 

$4.87  on  ;^ioo,  or  on  i^io,ooo,       -         -         $487 
Less   difference   of  $175   between  price 

realized  on  June  2  for  ;^io,ooo,      -     $48,825 
And    price   paid    for  cover  (delivery  on 

September  i),      -        -        -        -         48,650  175 

Net  cost  of  loan  for  90  days,     -         -      $312 
that  is,  approximately,  2^7©  P^^  annum. 


40  International  Exchange. 

Against   High  Class   Bonds   or  Stocks   Purchased  by- 
Bankers  for  Investment   During  the  Period  of 
Cheap  Money,  that  May  Show  Deprecia- 
tion of  Value,  Resulting  in  Reluct- 
ancy  to  Sell  at  a  Sacrifice. 

Another  instance  when  the  borrowing  of  money  through 
the  issuance  of  Finance  Bills  offers  advantages  to  drawers 
may  be  cited. 

In  the  average  year  there  is  some  time  when  money  is 
plenty  and  interest  rates  low,  and  if  the  dividend  rate  of  the 
banker  is  to  be  maintained,  he  must  employ  his  idle  funds, 
and  he  frequently  does,  by  the  purchase  of  some  high  grade 
security. 

While  his  primary  intention  was  based  upon  a  temporary 
investment  in  this  manner  until  money  could  again  be 
employed  at  remunerative  rates  in  the  ordinary  channels  of 
trade,  some  unforeseen  circumstances  might  arise,  resulting 
in  a  serious  depreciation  in  the  price  of  the  securities  at  the 
very  time  when  the  money  invested  in  the  securities,  is 
needed  for  the  accommodation  of  the  bank's  clientele  at  high 
interest. 

One  of  two  alternatives  presents  itself:  (i)  either  sell  the 
securities  at  the  depreciated  price  and  sustain  the  loss  on  the 
investment;  or  (2)  retain  the  securities  in  the  hope  of  a 
subsequent  advance  to  the  original  price,  and  continue  to 
draw  the  low  interest  which  they  earn,  and  thus  curtail  loan- 
able funds  to  the  amount  represented  by  the  investment. 

These  propositions  would  not  be  cherished  by  the  banker, 
and  it  is  at  this  juncture  that  the  Finance  Bill  once  more 
comes  to  his  relief. 

The  securities  purchased  for  investment  can  be  hypothe- 
cated as  collateral  for  Finance  Bills  issued,  and  the  cash 
amount  of  the  investment  returned  by  the  sale  of  London 
checks  issued  against  proceeds  obtained  by  discount  of  his 
Finance  Bills,  as  previously  explained,  the  loan  costing  him 


Demand  for  American  Finance  Bills.         41 

approximately  three  and  one-half  per  cent,  per  annum,  as 
shown  by  Example  I,  providing  the  same  terms  are  appli- 
cable to  the  transaction.  If  the  securities  are  yielding,  let 
us  say,  three  per  cent,  per  annum,  this  interest  may  be 
applied  to  lessen  the  cost  of  the  loan,  making  the  net  cost 
of  loan  about  one -half  per  cent,  per  annum. 


Subsequent  Renewals  of  Finance  Bills. 

By  subsequent  renewals  of  the  issue  of  the  Finance  Bill, 
the  securities  can  be  carried  in  this  manner  until  the  value  of 
same  has  recovered  by  appreciation  in  price,  and  such  hold- 
ing would  be  advisable,  provided :  the  securities  are  "gilt- 
edge,"  and  there  is  every  reason  to  believe  that  the  shrinkage 
in  value  is  only  temporary. 

Money  loaned  on  the  New  York  Stock  Exchange  against 
stocks  and  bonds  is  often  obtained  by  the  loaners  through  the 
issuance  of  Finance  Bills. 


Outright  Purchase  of  Securities. 
Bankers  sometimes  purchase  outright  entire  new  issues  of 
securities  from  corporations  with  proceeds  obtained  by  the 
issue  of  Finance  Bills,  sell  the  securities  to  investors  during 
the  currency  of  the  Finance  Bills,  and  apply  the  proceeds 
realized  through  the  sale  of  the  securities  to  the  payment  of 
the  Bills  at  maturity. 


Simplicity  of  Negotiating  Foreign  Loans. 
The  doors  of  the  money  markets  of  England,  Germany  and 
France  are  constantly  open  to  the  American  financiers,  and 
by  the  aid  of  the  cable  loans  can  be  negotiated  at  these 
centers  with  the  same  dispatch  and  simplicity  as  if  the  accom- 
modation were  extended  by  their  next  door  neighbor. 


42  International  Exchange. 

Two  -  Fold  Benefits  to  Drawees^ 
Of  inestimable  value  to  the  American  banker  (as  shown  in 
the  present  Chapter)  are  the  facilities  accorded  through  the 
issuance  of  Finance  Bills,  and  to  the  international  brothers 
extending  the  credit  Finance  Bills  have  a  two- fold  gain  in 
the  payment  annually  of  enormous  sums  in  commissions  into 
their  coffers  and  the  affording  of  a  safe  outlet  for  their  loanable 
funds  at  current  rate  of  interest  in  their  respective  countries. 

The  international  objective  view  of  the  desirability  of  the 
Finance  Bill  may  be  fittingly  expressed  by  the  following 
opinion  of  a  prominent  London  banker:  "We  have  become 
so  accustomed  to  discounting  your  [American]  Finance  Bills 
that  we  could  not,  now,  manage  to  get  along  without  them." 


Chapter  VII. 
RELATIVE  RISK  IN  PURCHASE  OF  BILLS. 

LONG  training  serves  as  the  best  guide  for  the  profitable 
purchase  of  foreign  bills  of  exchange;  and  to  the 
younger  members  of  the  profession,  the  following  general 
suggestions  are  in  a  broad  sense  outlined  on  the  relative  risk 
in  the  purchase  of  bills,  with  notice  that  many  factors, 
conditions  and  contingencies  may  increase  or  decrease  such 
risk. 

Bills  of  Exchange  that  May  be  Purchased  Safely: 

I.  Bills  accompanied  by  documents  covering  staple,  non- 
perishable  merchandise  that  can  be  readily  resold  in  the 
market  where  consigned,  in  the  event  of  forced  sale,  by 
reason  of  non-acceptance  or  non-payment  by  the  drawees  of 
the  appertaining  bill  and  the  inability  of  drawers  to  reim- 
burse the  purchaser  of  the  bill  upon  demand  for  the  amount 
originally  paid  them,  plus  expenses  incurred. 

The  proceeds  realized  upon  merchandise  disposed  of  under 
forced  sale  would  be  applied  on  account  of  the  amount  of 
reimbursement  demanded  of  drawers,  and  provided  the 
merchandise  was  of  the  nature  just  referred  to,  would  almost 
liquidate  the  purchaser's  claim  against  the  drawers,  and  the 
small  balance,  still  due  the  purchaser  may  be  recovered  with 
little  difficulty  from  the  drawers;  if,  however,  they  have  failed 
in  the  meantime,  then  the  purchaser  would  have  a  creditor's 
claim  for  such  balance  against  the  insolvent  drawers. 

The  possibility  of  such  a  loss  is  very  remote  in  view  of  the 
fact  that  the  majority  of  drawers  to  bills  of  exchange 
(exporters)  have  all  refused  bills  immediately  referred  to  their 
own  agents  abroad  for  protection. 

Staple  and  non-perishable  merchandise  includes  flour  and 
other  manufactured  cereals  such  as  corn  meal,  oat  meal, 
hominy,  etc.;  farming  implements,  canned  meats,  fresh  meats 
and  other  provisions,  when  the  fresh  meats  and  provisions 

43 


44  International  Exchange. 

are  shipped  in  refrigerator  cars  and  vessels  of  modern  type, 
and  warehoused  in  cold-storage  plants  upon  arrival  at  desti- 
nation, if  not  immediately  taken  up  by  drawees; 

II.  Bankers'  Checks  upon  their  foreign  correspondents  may 
also  be  purchased  safely  to  the  extent  commensurate  with 
the  financial  strength  of  the  drawers,  and  endorsers,  if  any; 

III.  Bankers'  sixty  and  ninety  days'  sight  drafts  drawn 
upon  their  European  correspondents  may  be  safely  purchased 
for  an  amount  to  be  determined  by  the  financial  responsi- 
bility of  the  drawers  and  endorsers,  if  any. 

Bills   of  Exchange    Bought    Only   from    Drawers    (or 

Exporters)  of  the  Highest  Commercial  Rating, 

Involving  More  or  Less  Risk: 

I.  Bills  accompanied  by  documents  representing  shipments 
of  perishable  merchandise,  such  as  butter,  cheese,  fresh  fruits, 
etc.,  that  are  liable  to  deterioration  in  quality,  or  to  absolute 
loss,  during  transit,  rendering  the  merchandise  practically 
unsalable  abroad ; 

II.  Bills  with  documents  showing  collateral  security  to  live 
cattle,  horses  or  other  live  animals,  necessitating  the  expense 
of  help  and  feed  during  transit  for  the  maintenance  of  life, 
as  a  refusal  of  such  annexed  bill  would  depreciate  the  value 
of  the  security,  day  by  day,  to  the  extent  of  such  expense 
incurred ; 

III.  Clean  bills  (bills  without  documents  attached),  drawn 
by  merchants  or  corporations  upon  European  merchants  and 
corporations. 

The  liability  of  drawers  and  drawees,  or  acceptors  of  bills 
of  exchange,  to  the  purchaser  thereof,  is  the  fundamental 
security  of  all  exchange,  irrespective  of  any  collateral  security 
evidenced  by  relative  documents. 


Drawers  Released  Only  on  Payment.         45 

Risk  of  Loss  Reduced  to  a  Minimum  by  the  Purchase 

of  Documentary  Foreign  Bills  of  Exchange, 

Documents  on  Payment. 

In  addition  to  the  liability  of  drawers  and  endorsers,  if  any, 
purchasers  of  documentary  bills  are  secured  by  the  financial 
responsibility  of  the  acceptors  on  and  after  acceptance  until 
actual  payment  of  the  bills. 

The  liability  of  drawers  continues  after  the  acceptance  of 
bills,  and  remains  in  force  during  the  whole  life  of  the  bills, 
and  ceases  only  upon  payment. 

The  primary  conditions  of  the  desirability  of  the  purchase 
of  any  bill  of  exchange  depend  upon  the  moral  and  financial 
standing  of  the  parties  thereto,  and  the  liabilities  just  stated 
of  the  parties  should  be  quite  ample  in  the  majority  of  cases. 
Further,  these  bills  possess  another  element  of  protection 
against  a  possible  loss  in  this,  that  they  are  supplemented  by 
documents  covering  salable  merchandise  with  title  continuing 
in  the  purchaser  of  the  bills  until  payment  at  maturity,  or 
retirement  prior  to  maturity,  of  the  respective  bills  of 
exchange. 

Security  Against  Loss  in  Documentary  Bills  of  Exchange 

Deliverable  to  Drawees  on  their  Acceptance; 

and  in  Clean  Bills  of  Exchange. 

The  protection  given  the  purchaser  of  clean  bills  is  identi- 
cal with  that  of  documentary  bills  of  exchange  with 
documents  deliverable  on  payment  so  far  as  the  liability  of 
the  drawers  and  acceptors  is  concerned;  such  relative  docu- 
ments, when  Surrendered  on  acceptance  of  the  drawees  to 
documentary  acceptance  bills  thereafter  cease  as  supplement- 
ary protection  to  the  purchaser.  Clean  bills  never  possess 
documentary  collateral. 

The  drawers  and  drawees  to  clean  bills  should  have  the 
highest  standing  and  credit  as  the  true  basis  for  their  purchase, 
and  their  negotiation  is  tantamount  to  making  an  unsecured 


46  International  Exchange. 

loan  to  the  drawers  of  clean  bills  for  the  time  specified  therein, 
with  the  further  liability  of  the  drawees  after  acceptance — 
such  acceptance  being  practically  an  endorsement. 

It  is  always  advisable  to  exercise  the  same  care  and  pre- 
caution in  purchasing  documentary  bills  of  exchange  with 
documents  on  acceptance  as  in  the  purchase  of  clean  bills, 
even  though  the  financial  responsibility  of  the  drawers  of 
documentary  acceptance  bills  is  further  reenforced  by  the 
possession  and  control  in  the  purchaser  of  the  merchandise 
evidenced  by  the  attached  documents  pending  the  acceptance 
of  the  bill  by  the  drawees;  invariably,  such  drawees  are 
bankers  or  merchants  of  excellent  standing,  thus  assuring 
practically,  payment  of  the  bills. 

Checks    Issued   by    Banks   or    Bankers    Upon  Their 
Foreign  Correspondents. 

The  purchaser  of  such  checks  must  be  entirely  guided  by 
the  capital,  surplus,  and  general  financial  standing  of  the 
banker  or  bank  of  issue,  as  such  bills  of  exchange  have 
absolutely  no  other  security  unless  there  are  other  endorse- 
ments. 

Checks  Upon   Banks,    Bankers,  or  Merchants   Issued 

by  Individuals  or  Corporations. 

Checks  offered  for  sale  by  unknown  individuals  without  a 
responsible  endorser  should  not  as  a  matter  of  course  be 
purchased.  Checks  from  regular  clients  in  good  standing 
and  in  possession  of  means  equivalent  to  the  amount  involved 
present  little  risk  through  their  negotiation. 

Bankers'  Long  Time  Drafts  Issued  Upon  Their  For- 
eign Correspondents  and  Usually  Drawn  at 
Sixty  or  Ninety  Days'  Sight. 

These  bills  should  be  classified  with  clean  bills,  and 
purchasers  should  be  guided  by  the  same  precautionary 
measures;  they  are  divided  into  two  classes  commonly  termed 
single  and  double  named  bills. 


Endorsing  Single  Named  Bills.  47 

The  Single  Named  Bill 
Applies  to  a  bill  where  the  drawers  and  drawees,  or 
acceptors,  are  of  one  and  the  same  responsibility;  to  illustrate: 
a  bill  issued  by  John  Smith  of  New  York  City  upon  his 
house,  John  Smith  of  London,  would  be  a  single  named  bill. 
Frequently,  however,  the  same  firm  may  be  conducted  under 
different  names  in  the  different  cities,  and,  therefore,  it  is  of 
paramount  importance  that  the  person  intrusted  with  the 
responsibility  of  purchasing  bills  of  this  nature  familiarize 
and  thoroughly  post  himself  on  the  financial  relationship,  if 
any,  of  drawers  to  drawees. 

The  Doubled  Named  Bill 
Designates  drawers  and  drawees,  or  acceptors,  in  no  way 
connected  with  each  other  in  financial  responsibility,  and  are 
two  distinct  and    independent    concerns;  in  other   respects 
single  and  double  named  bills  are  the  same. 

The  single  named  bills  have  only  one  name  for  security, 
and  any  financial  embarrassment  of  the  drawers  would  involve 
the  solvency  of  drawees,  so  these  bills  do  not  command  as 
high  a  price  as  double  named  bills  with  their  two  names  for 
underlying  protection  of  payment :  that  of  the  drawers  and 
drawees  as  just  explained. 

A  custom,  frequently  resorted  to,  is  to  convert  a  single 
named  bill  into  a  double  named  bill,  and  that  change  is 
accomplished  by  obtaining  the  endorsement  of  some  bank  or 
banker  of  high  standing  on  a  single  named  bill.  The  bank 
or  banker  supplying  the  endorsement  usually  receives  as 
compensation  the  amount  of  the  difference  in  price  between 
the  single  and  double  named  bill,  varying  from  one -eighth 
to  one-half  cent  per  pound  Sterling  according  to  the  risk 
involved. 


48  International  Exchange. 

Foreign  Banking  Laws  and  Regulations  Pertaining  to 
the  Endorsements  of  Bills  of  Exchange,  Etc. 

Contrary  to  the  laws  of  this  country,  stamped  endorsements 
of  corporations  are  not  recognized  by  foreign  bankers  unless 
supplemented  by  the  written  signature  of  an  officer  author- 
ized to  sign  in  behalf  of  the  corporation.  Endorsements  by 
firms  or  individuals  must  be  made  in  writing. 

All  bills  of  exchange,  payable  in  Great  Britain,  must  be 
endorsed  without  the  addition  of  any  prefix,  the  reading  to 
the  order  of  the  payee  to  the  contrary  notwithstanding.  For 
example:  a  draft  made  payable  to  the  order  of  Mr.  John 
Smith  or  Mrs.  Mary  Jones  must  be  endorsed  John  Smith  or 
Mary  Jones,  without  the  Mr.  or  Mrs.,  otherwise,  payment  of 
the  draft  can  only  be  obtained  on  the  guaranty  of  the 
endorsement  by  the  banker  presenting  it. 

Payees  of  bills  of  exchange,  drawn  upon  Great  Britain  and 
some  of  the  other  European  countries,  are  not  required  to 
establish  their  identity  to  obtain  encashment,  and  such  bills 
are  practically  payable  to  bearer.  The  laws  of  these  countries 
relative  to  punishment  covering  forgery  are  so  rigid  that  few 
attempts  have  been  made  to  obtain  payment  of  drafts  with 
forged  endorsements. 

Checks  drawn  upon  Great  Britain,  when  written  diagonally 
across  the  face  in  this  manner: 


will  be  paid  only  by  the  drawees  when  presented  by  some 
bank  or  banker,  and  is  tantamount,  practically,  to  the  identi- 
fication of  the  payees. 

The  date  of  issue  of  checks,  payable  in  France,  must  be 
written  in  letters  and  not  in  figures  in  order  to  be  exempt 
from  the  French  banking  laws  relative  to  bill  stamp  duty, 
being  one- half  mille  on  the  face  amount  of  all  bills  of 
exchange  other  than  checks. 


Chapter  VIII. 

CABLE  TRANSFERS. 

/^ABLE  Transfers  designate  the  transmission  and  pay- 
V^  ment  of  money  in  a  foreign  country  when  effected  b.y 
telegraph;  and  ordinarily  command  from  one -sixteenth  to 
one-eighth  per  cent,  above  the  price  for  bankers'  demand 
drafts,  and  this  difference  in  price  represents  the  interest. 

Illustration:  a  demand  draft  sold  by  a  Chicago  bank  on 
May  I,  would  not  be  presented  to  the  drawee  for  payment 
until  about  May  ii,  whereas  a  Cable  Transfer  sold  on  May  i 
would  be  paid  in  London  on  the  same  or  following  day.  To 
offset  the  ten  days'  interest  accruing  to  the  credit  of  the 
Chicago  bank  during  the  transit  of  the  draft  from  Chicago  to 
London  on  the  funds  deposited  with  its  London  corresp^'ond- 
ents,  the  premium  of  one-eighth  per  cent,  is  exacted  for 
Cable  Transfers. 

Many  factors  govern  the  price  of  Cable  Transfers,  and  at 
times  a  premium  of  about  one- quarter  per  cent,  is  paid  for 
them;  such  factors  may  be: 

I.  Flurries  on  the  New  York  Stock  Exchange  with  the 
incidental  abnormal  high  rates  for  money  frequently  induce 
New  York  bankers  to  sell  their  checks  on  London  for  amounts 
largely  in  excess  of  their  cash  credit  balances  in  the  hands 
of  their  London  bankers,  and  enables  them  to  relieve  the 
stringency  of  the  money  market  and  at  the  same  time  obtain 
a  high  rate  of  interest  by  loaning  the  money  realized  in  selling 
their  London  checks. 

The  manner  of  covering  these  checks  prior  to  their  presen- 
tation for  payment  in  London  is  and  can  be  effected  only 
through  the  purchase  of  Cable  Transfers,  and  these  operations 
when  indulged  in  extensively  naturally  create  a  brisk  market 
demand  for  Cable  Transfers  and  fancy  prices  in  many 
instances  have  to  be  paid. 

3  49 


50  International  Exchange. 

II.  Exceptionally  high  rates  for  London  checks,  caused 
by  an  unexpected  heavy  inquiry  and  a  scant  supply  of  com- 
mercial bills  of  exchange,  might  tempt  the  aggressive 
banker  to  avail  himself  of  the  high  price  by  selling  his  checks 
on  London  short,  basing  his  calculations  on  a  decline  in  the 
price  of  exchange  during  the  transit  of  his  checks  to  a 
point  where  he  can  buy  Cable  Transfers  in  reimbursement 
for  approximately  the  same  rate  he  sold  his  checks,  and  in 
that  event,  he  would  have  had  the  free  use  of  the  proceeds 
of  his  sale  of  checks  in  the  interim  for  loaning  purposes. 

Unforeseen  circumstances  often  offset  the  calculations  of 
the  financier,  and  instead  of  the  anticipated  decline,  the 
market  has  remained  stationary,  or,  in  fact,  had  an  advance, 
and  in  the  face  of  these  conditions,  the  many  short  sales  of 
checks  must  still  be  covered  by  Cable  Transfers  at  about 
any  price  the  seller  may  dictate. 

III.  The  fortnightly  settlement  days  on  the  London  Stock 
Exchange  occurring  about  the  middle  and  end  of  each 
month,  influence  also  the  price  for  Cable  Transfers;  and 
New  York  banking -firms,  engaged  in  transactions  in  the 
London  market,  frequently  are  called  upon,  especially  in  a 
wide  and  fluctuating  market,  to  protect  their  operations  by 
the  cash  payment,  on  these  days,  of  very  large  sums  of 
money  that  are  transferred  by  telegraph  and  result  in  a  heavy 
demand  for  Cable  Transfers. 

IV.  There  are  many  banKers  not  averse  to  having  their 
foreign  accounts  show  a  debit  balance  at  various  times 
throughout  the  half-yearly  account  periods,  and,  who, 
through  a  sentiment  of  pride  and  an  implied  request  on  the 
part  of  their  European  friends,  always  close  their  accounts 
on  June  30  and  December  31  with  a  liberal  cash  credit 
balance  created  in  most  cases  at  the  last  moment  by  the 
purchase  of  Cable  Transfers. 

The  demand  for  Cable  Transfers  through  this  source  is 
sufficiently  large  to  induce  some  bankers  to  establish  large 


Use  of  Telegraphic  Cipher  Code.  51 

credit  balances  with  their  London  friends  during  the  months 
of  June  and  December,  thereby  placing  themselves  in  a 
position  to  sell  Cable  Transfers  on  June  29  and  December 
30  at  the  advanced  prices  then  usually  obtained. 

Telegraphic  Cipher  Code. 
The  payment  of  money  and  the  transfer  of  title  to  valuables 
by  cablegram  is  accomplished  by  the  aid  of  the  telegraphic 
cipher  code. 

Cable  expenses  covering  transfers  for  amounts  of  ^^5000 
and  over  must  be  paid  by  the  banker  selling  the  transfer,  and 
it  is  in  his  interest  to  have  this  code  as  complete  as  possible. 
Telegraphic  companies  charge  a  fixed  tariff  per  word  for 
transmitting  cable  messages,  ranging  in  cost  from  thirty-one 
cents,  Chicago  to  London;  to  four  and  2/100  dollars,  Chicago 
to  Caracas,  Venezuela. 

Telegraphic  cipher  codes  are  therefore  complicated  affairs, 
and  should  be  so  compiled  as  to  permit  of  additions  from 
time  to  time  to  meet  fresh  requirements.  The  code  of  the 
economical  banker  is  never  complete  and  is  in  a  constant 
state  of  augmentation. 

These  codes  should  be  so  arranged,  that,  by  the  trans- 
mission of  a  single  word,  the  recipient  would  be  instructed 
to  effect,  for  example,  the  following  order: 

"Notify  and  pay  to  the  Union  Discount  Company  of 
London,  Limited,  London,  for  account  of  the  New  York 
Agency  of  the  Bank  of  Montreal,  the  sum  of  ten  thousand 
pounds  to  the  debit  of  our  account." 

In  addition  to  its  employment  for  the  payment  of  money, 
the  code  is  used  for  many  other  purposes  by  the  banker  as  a 
money-saver  in  the  dispatch  of  cable  messages;  thus: 

Its  cipher  is  used  for  obtaining  reports  on  foreign  houses, 
quoting  exchanges  between  foreign  countries,  ordering  gold 
shipments,  stopping  payments  on  drafts,  advising  drafts, 
advising  the  non-acceptance  or  non-payment  of  foreign  bills 
of  exchange  remitted  for  collection  and  credit,  and  for 
innumerable  other  purposes. 


52  International  Exchange. 

From  the  very  nature  of  its  diversified  requirements  for 
individual  use,  it  will  be  readily  understood  that  the  perfect 
code  must  be  of  private  construction,  and  that  a  published 
code  for  general  use  would  be  of  little  value  to  the  banker. 
Coupled  with  the  private  code,  all  leading  bankers  have  for 
immediate  use  the  standard  codes,  such  as  Lieber's  Code,  the 
A-B-C  Code,  and  others,  and  sometimes  use  is  made  of  these 
codes  in  conjunction  with  their  own  code,  or  in  communi- 
cating by  telegraph  with  inactive  correspondents,  who  have 
not  been  furnished  with  the  private  code,  and  have  in  their 
libraries  the  standard  codes. 

Of  vital  importance  are  the  test-words  that  constitute  the 
first  or  last  word  of  a  message  according  to  agreement.  The 
test-word  is  incorporated  in  the  message  for  the  purpose  of 
establishing  the  genuineness  of  the  message  and  is  always 
used  as  a  safeguard  against  fraud  or  pecuniary  loss  in  the 
transmission  of  messages  involving  the  payment  of  money  or 
transfer  of  titles  to  valuables. 

It  is  therefore  of  the  greatest  importance  that  these  test- 
words  be  trusted  only  to  the  custody  of  persons  of  character 
and  carefully  guarded  lest  the  omission  of  this  precaution 
might  have  very  serious  consequences  for  no  recourse  could 
be  had  against  the  recipient  of  a  cable  message  covering  a 
payment  of  money  and  possessing  as  a  verification  of  its 
genuineness  the  employment  of  a  forged  test-word. 

Another  precaution  against  loss  exercised  by  the  banker  is 
to  hand  every  cable  message  to  a  trusted  employe  for  trans- 
lation to  see  that  it  has  been  correctly  compiled  before 
sending  it. 

Receipts  given  to  purchasers  of  Cable  Transfers  shouiJ 
bear  on  their  face  the  conditions  fou.^d  in  the  upper  left-luiud 
corner  of  the  specimen  receipt- form,  submitted  in  the  wordj 
followinp;: 


Precautionary  Measures.  53 

Specimen  Receipt. 


It  is  fully  understood  and  agreed  that  no  liaDUity  shall 
attach  to  us,  nor  to  our  correspondents,  for  loss  or  damage 
in  consequence  of  any  delay  or  mistake  in  transmitting  this 
message,  or  for  any  other  cause  beyond  our  control. 


Chicago,  Illinois,  October  i,  1903. 

Messrs.  John  Smith  &  Co.,  Chicago, 

To  ATLAS   NATIONAL  BANK,  Dr., 

Cable  Transfer  to  Henry  Brown  &  Co.,  London, 

;^io,ocxD  at  $4.88, $48,800 

Payment  made  by  The  London  City  and 

Midland  Bank,  Limited,  London,  Cable, 

$48,800 

Extreme  care  should  be  taken  to  guard  against  the  possi- 
bility of  neglecting  to  effect  a  Cable  Transfer  according  tc 
agreement  for  a  failure  to  make  payment  at  a  specified  time 
would  not  only  cast  a  serious  reflection  upon  the  credit  of  the 
seller,  but  might  be  the  cause  of  litigation  instituted  by  the 
purchaser  for  the  recovery  of  damages. 


s 


Chapter  IX. 

FOREIGN  BILLS  OF  EXCHANGE  BOUGHT  AND 

SOLD  FOR  "FUTURE  DELIVERY"— 

WHEN  A  CONSERVATIVE  AND 

NOT  A  SPECULATIVE 

PRACTICE. 

AS  a  matter  of  course,  wilful  speculation  in  the  purchase 
and  sale  of  foreign  exchange  in  future  options  should 
be  strictly  avoided  in  The  Foreign  Department;  and  should 
this  suggestion  not  be  adhered  to,  the  profits  of  The  Foreign 
Department,  like  other  gains  subject  to  the  vagaries  and 
uncertainties  of  speculation,  are  bound  to  be  erratic,  and  the 
very  large  profits  of  one  year,  as  a  result  of  fortunate  specu- 
lations, are  bound  to  be  counteracted  in  a  subsequent  year, 
by  very  small  profits,  covered  by  a  period  of  unfortunate 
speculations. 

One  feature  pertaining  to  speculation  is  invariably  the 
same — the  ultimate  outcome  is  always  disappointing,  and 
were  the  matter  to  rest  there,  it  would  not,  perhaps,  be  so 
bad,  but  it  involves  contingencies  of  a  very  unpleasant 
nature.  To  explain:  the  uniformity  of  annual  profits  of  The 
Foreign  Department  can  be  obtained  only  in  one  manner, 
viz :  by  a  strict  compliance  with  a  fixed  basis  of  operation  upon 
lines  governing  the  legitimate  purchase  and  sale  of  exchange. 
Even  then,  the  uniformity  in  the  percentage  of  profits  is 
beyond  the  power  of  the  manager  by  reason  of  the  many 
conditions  and  circumstances  of  a  local  and  foreign  nature, 
constantly  at  work,  directly  and  indirectly,  affecting  the 
earning  capacity  of  the  department  over  which  he  has  abso- 
lutely no  control,  the  satisfactory  explanation  thereof  should 
exonerate  him  from  criticisms  of  mismanagement  and  ineffi- 
ciency, provided  he  has  not  indulged  in  wilful  speculation. 

Reasons  to  show  that  the  business  devoted  to  the  legitimate 
purchases  and  sales  of  foreign  exchange  for  "future  delivery," 

54 


London  Book  Balance.  55 

commonly  termed  "futures,"  is  conservative  and  not  specu- 
lative: 

Every  Foreign  Department,  in  order  to  conduct  an  active 
and  continuous  business,  must  have  as  its  foundation,  a 
working  London  book  balance,  and  the  amount  thereof  is 
dependent  upon  the  volume  of  business  transacted. 

Assume  that  such  working  balance,  the  money  there 
employed  by  The  Foreign  Department,  is  the  sum  of  $500,000, 
approximately  ;!fioo,ooo.  This  working  balance  was  not 
created  by  the  purchase  of  demand  bills  and  bills  of  exchange 
discountable  upon  receipt,  by  the  London  banker,  exclusively, 
but  includes  also  thirty  and  sixty  days'  sight  bills,  documents 
against  payment,  to  be  paid  on,  or  prior  to  maturity,  under 
rebate,  at  the  retirement  rate  of  discount,  as  explained  in 
Chapter  XVII,  Class  B  bills,  at  the  pleasure  of  the  drawees 
(or  acceptors).  One-half  of  the  book  balance,  or  $250,000, 
;;^50,ooo,  is  represented  by  bills  of  this  type,  purchased  at 
an  average  cost  for  demand  bills  of  $4.86  per  pound  Sterling, 
as  explained  in  "The  English  Account." 

The  banker  can  not  secure  his  profit  by  selling  his  demand 
drafts  on  London  for  the  equivalent  amount  of  these  bills 
until  actual  payment  by  drawees  without  creating  a  costly 
cash  overdraft  and  it  is  impossible  to  determine  on  what 
dates  these  payments  for  drafts  will  be  made,  with  the  result 
that  the  banker  resorts  to  one  of  three  options,  to- wit: 

I.  Converts  the  bills  into  cash  by  issuing  his  sixty  days* 
sight  bills  for  discount  against  them  as  explained  in  Chapter 
XVII,  "The  English  Account;" 

II.  Or  awaits  the  advices  from  his  London  correspondents 
covering  the  dates  of  payments  of  the  bills; 

III.  Or  sells  his  demand  drafts  for  future  delivery  to  the 
amount  of  the  equivalent  of  the  bills. 


$6  International  Exchange. 

Open  Market  London  Discount  Rate. 

Option  I  is  not  always  desirable  or  advantageous,  depending 
upon  the  private  or  open  market  London  discount  rate  that 
may  have  advanced  since  purchase  of  the  thirty  and  sixty 
days'  documentary  payment  bills,  and  in  that  event  would 
increase  the  cost  of  the  demand  exchange  by  conversion, 
under  discount; 

Compulsory  Holding  of  Exchange. 

Option  II  involves  the  element  of  risk,  or  speculation,  the 
very  feature  to  avoid,  namely:  the  compulsory  holding  of 
exchange,  bought  on  a  basis  of  an  average  cost  of  $4.86  per 
pound  Sterling,  until  sold  at  various  times  within  sixty  days 
after  dates  of  purchase,  according  to  dates  of  payment  of  the 
bills  by  drawees,  and  at  future  uncertain  prices  for  demand 
drafts  that  maybe  considerably  lower,  than  the  average 
purchase  price,  at  the  time  of  deliveries,  owing  to  a  decline 
in  the  market  with  resulting  loss; 

Future  Deliveries  in  Installments. 

Option  III  must  therefore  be  availed  of  by  seizing  the  first 
opportunity  to  sell  the  aggregate  amount  of,  say  i^5 0,000, 
$250,000,  demand  drafts  for  future  deliveries  in  installments, 
say,  of  ^10,000  deliverable  fifteen  days  after  average  date  of 
purchase,  ;^20,000  deliverable  thirty  days  after  average  date 
of  purchase,  and  ;f20,ooo  deliverable  forty-five  to  sixty  days 
after  average  date  of  purchase  at  a  price  above  $4.86,  the 
cost  price,  to  insure  a  profit  on  the  exchange,  in  addition  to 
the  interest  accruing  on  the  bills  from  date  of  purchase  to 
date  of  payment  by  drawees,  at  the  rate  of  interest  on  the 
original  purchases  of  the  bills  made. 


Advance  in  Price  for  Drafts.  $7 

A  pertinent  inquiry — Why  is  it  that  the  demand  drafts 
were  sold  for  future  deliveries,  covering  a  range  of  time  from 
fifteen  to  sixty  days,  subsequent  to  dates  of  purchase,  and  not 
for  one  delivery  sixty  days  after  purchase? 

The  reason  is  the  thirty  and  sixty  days'  sight  bills  are  paid 
by  drawees,  under  discount,  from  day  to  day,  and  a  reason- 
able estimate  would  be  that  a  sufficient  amount  had  been 
paid  out  of  the  entire  amount  of  $250,00x3,  ;^50,ooo,  to  permit 
drawing  a  demand  draft  for  ;^  10,000  fifteen  days  after 
purchase,  ;!^20,ooo  thirty  days  after  purchase,  and  ;i^20,000 
from  forty -five  to  sixty  days  after  purchase. 

Another  question  in  point — What  creates  this  call  by 
bankers  for  demand  drafts  on  London  for  future  deliveries, 
and  makes  it  possible  to  obtain  the  same  or  higher  prices,  for 
these  deliveries,  than  the  bankers  are  willing  to  pay  for 
demand  London  drafts  for  prompt  delivery  .!* 

For  the  very  reason  that  the  bankers  desire  to  secure  them- 
selves from  a  possible  advance  in  the  price  for  demand  drafts 
on  London  required  for  future  dates — as  set  forth  in  Chapter 
VI  on  Finance  Bills. 

These  conditions  do  not  always  exist,  and  at  certain  periods 
of  the  year,  protection  afforded  by  the  sale  of  "futures"  can 
only  be  obtained  by  accepting  a  price  lower  than  that  for 
prompt  delivery,  and  by  referring  to  Chapter  XVII,  it  will 
be  found  that  during  these  periods  the  thirty  and  sixty  days* 
sight  bills  should  be  purchased  on  a  basis  accordingly. 

Another  source  of  supply  of  foreign  exchange,  enabling 
legitimate  sales  for  future  delivery  and  compelling  such  sales 
to  be  characterized  as  conservative  banking,  is  derived  from 


58  International  Exchange. 

Exporters,  Who  are  Heavy  Sellers  of  "Futures." 

European  merchants  are  constantly  asking  American 
exporters  for  quotations  on  provisions,  seed,  etc.,  for  future 
delivery.  For  example:  an  exporter  may  be  requested  to 
offer  prices  in  May  for  seeds  to  be  shipped  during  the  month 
of  August,  or  an  exporter  of  lard  may  have  inquiries  in  Octo- 
ber for  quotations  on  lard  to  be  exported  during  the  follow- 
ing January. 

It  is  obvious  that  the  sole  manner  to  determine  the  prices 
for  these  commodities  to  be  offered  to  secure  a  net  fixed  profit 
will  be  to  eliminate  the  element  of  speculation  with  respect  to 
the  future  course  of  the  foreign  exchange  market.  Exporters 
accomplish  this  by  obtaining  from  their  bankers  bids  for 
their  foreign  bills  of  exchange  to  an  amount  equal  to  the 
value  of  the  commodities  offered  for  sale  to  their  European 
friends,  for  future  delivery,  subject  to  their  acceptance  on  the 
following  day. 

Should  the  European  merchant  accept  the  exporter's  offer, 
the  exporter  immediately  accepts  the  bids  for  the  foreign  bills 
of  exchange,  for  future  delivery,  received  the  preceding  day 
from  the  banker,  and  on  those  bids  the  exporter's  quotations 
to  the  European  merchant  were  based.  The  transaction  and 
the  profit  to  the  exporter  is  closed,  pending  only  the  shipment 
of  the  goods  and  the  delivery  of  the  foreign  bills  of  exchange 
in  due  course  of  time. 


Purchases  of  Futures  Conservative.  59 

Bankers'  Basis  for  Quotations   of  Foreign  Exchange 

"Futures." 
Suppose  the  banker  had  purchased  of  the  exchange.  It 
is  not  reasonable  to  infer  that  he  would  be  willing  to  assume 
a  risk  that  the  exporter  would  not  undertake.  On  what  basis, 
then,  did  the  banker  make  quotations  for  his  foreign  exchange 
"futures." 

His  quotations  must  have  been  based  on  one  of  the  follow- 
ing factors: 

I.  Either  he  had  "Finance  Bills"  outstanding  maturing 
abroad  in  August  or  January,  and  desired  to  fix  the  exact  cost 
of  the  rate  of  interest  on  the  underlying  loans,  by  securing 
cover,  by  the  purchase  of  these  "futures"  deliverable  during 
these  months,  as  explained  in  Chapter  IX;   or 

II.  He  based  his  bids  to  the  exporter,  upon  bids  by  New 
York  bankers,  through  brokers,  for  exchange  deliverable  to 
them  during  the  months  of  August  or  January^  which  he  would 
have  accepted  in  event  of  sale  of  "futures"  by  the  exporters. 

The  practice  of  the  present  day  of  making  purchases  and 
sales  of  foreign  bills  of  exchange  for  future  deliveries,  based 
upon  legitimate  lines  of  operation,  is  conservative,  therefore, 
and  not  speculative. 


Chapter  X. 

FOREIGN  BILLS  OF  EXCHANGE  PURCHASED 
FOR  INVESTMENT. 

TH  E  financier  is  ever  on  the  alert  to  employ  his  loanable 
funds  in  the  channel  that  offers  the  highest  rate  of  inter- 
est without  impairment  of  security  or  availability  in  case  of  an 
emergency.  No  form  of  investment  embodies  these  features 
so  admirably  at  certain  times  as  an  investment  in  the  purchase 
of  foreign  bills  of  exchange. 

The  monetary  conditions  throughout  the  prominent  coun- 
tries of  the  world  are  rarely  identical,  so  that,  while  the 
interest  rate  for  money  in  this  country  would  be  cheap,  the 
rates  obtaining  in  England,  Germany,  or  France,  might  be 
considerably  higher. 

High  interest  rates  for  money  are  due  to  one  of  two 
conditions:  such  rates  are  the  result  of  distrust  and  the  unwil- 
lingness of  the  banker  to  make  loans  for  fear  of  financial  and 
commercial  disturbances;  or  the  result  of  commercial  pros- 
perity, accompanied  by  a  brisk  demand  for  money  for  legiti- 
mate industrial  development. 

Before  making  purchase  of  foreign  bills  of  exchange  for 
investment,  the  banker  will  satisfy  himself  that  the  cause  for 
the  high  rate  of  interest  in  that  country  where  the  foreign 
bills  are  payable  and  where  he  contemplates  investing  his 
funds,  is  due  to  the  former  or  the  latter  reason;  and  as  he 
would  hesitate  to  make  loans  in  his  own  country  under  the 
former  conditions,  he  certainly  would  not  seek  a  foreign 
market  under  similar  circumstances. 

Assume  that  the  high  rates  of  interest  result  from  a  period 
of  prosperity,  and  that  participation  therein  can  be  made 

60 


Remittances  of  Bills.  6i 

with  absolute  safety  in  such  foreign  country,  and  that  the 
bills  about  to  be  purchased  are  drawn  upon  Germany. 

Exports  are  always  stimulated  during  periods  of  prosperity, 
as  the  demand  for  imported  merchandise  is  increased  by  the 
demand  occasioned  by  the  ability  to  pay  for  same  by  the 
consumers  in  good  times.  No  trouble  will  arise  in  purchasing 
bills  drawn  by  merchants  against  exports  as  an  abundance  of 
these  bills  will  be  tendered  for  sale. 

Assume  further  that  the  Imperial  German  Reichsbank 
rate  of  discount  is  five  and  one-half  per  cent,  per  annum,  and 
the  open  market  discount  rate  is  four  and  one- half  per  cent, 
and  that  money  in  the  local  American  market  is  a  drug  at 
three  per  cent.,  an  actual  condition  known  to  bankers.  A 
very  large  percentage  of  documentary  bills  of  exchange  on 
Germany,  drawn  upon  merchants  of  first-class  financial  stand- 
ing, and  upon  prime  bankers  at  sixty  and  ninety  days'  sight, 
with  instructions  from  the  drawers  to  surrender  appertaining 
shipping  documents  against  the  acceptance  of  drawees  of  the 
respective  bills,  are  subject  to  discount  at  the  private  or 
open  market  discount  rate;  and,  instead  of  remitting  these 
bills  to  his  German  correspondents  for  the  credit  of  his 
account  upon  receipt,  under  discount,  as  explained  in  Chapter 
XX  relating  to  the  "German  Account,"  the  banker  will 
pursue  the  following  procedure  when  the  bills  are  purchased 
for  investment: 

On  the  day  of  purchase,  the  firsts  of  bills  of  exchange  are 
not  endorsed  by  the  purchasing  banker  to  the  order  of  the 
banker  to  whom  remitted,  as  in  the  case  of  bills  sent  for 
credit,  under  discount,  but  on  the  face  of  the  bills  is  written 
in  full  view  the  following  phrase:  For  acceptance  only,  and 
the  banker  instructs  his  correspondents  to  whom  forwarded, 
to  obtain  acceptance  and  to  hold  the  accepted  firsts  subject 
to  the  call  of  the  endorsed  appertaining  seconds;  then  by 
the  following  mail  are  forwarded  the  duplicate  documents, 


62  International  Exchange. 

which  have  been  detached  from  the  respective  seconds  of  bills 
of  exchange,  to  the  same  correspondents  with  instructions  to 
deliver  them  to  the  drawees  of  respective  drafts,  provided  the 
firsts  have,  in  the  meantime,  been  duly  accepted. 

Then  the  seconds  of  bills  of  exchange,  without  any  docu- 
ments, alone  remain  in  the  possession  of  the  purchasing 
banker,  and  on  the  face  of  such  seconds  is  written  legibly, 

Accepted  first,  held  by ,  inserting    the   name   of  the 

banker  to  whom  the  firsts  were  sent  for  procurement  of 
acceptance. 

The  investment  of  funds  has  now  been  completed,  and  the 
seconds  are  placed  in  the  purchasing  banker's  portfolio  with 
interest  to  his  credit  accruing  thereon  from  day  to  day  at  the 
rate  of  purchase,  and  in  the  case  at  hand  was  four  and  one- 
half  per  cent,  per  annum  being  the  private  discount  rate  in 
Germany  on  the  date  of  purchase  of  the  bills.  If  these 
seconds  of  bills  of  exchange  are  held  by  the  purchasing 
banker  to  within  fifteen  days  of  the  date  of  maturity,  and 
there  has  been  no  fluctuation  in  the  price  for  checks  on 
Germany  in  the  interim,  then  his  investment  has  netted  four 
and  one-half  per  cent,  per  annum  for  the  period  of  time  repre- 
sented by  the  tenor  of  these  bills. 

But,  if,  on  the  other  hand,  the  rate  of  exchange  for  checks 
on  Germany  has  advanced,  say,  one -quarter  per  cent,  during 
the  time  the  seconds  were  held,  and  the  bills  were  ninety 
days'  sight  bills,  then  his  investment  would  have  netted  an 
additional  one  per  cent.,  or,  in  all,  five  and  one-half  per  cent, 
per  annum  for  the  ninety  days,  being  a  gain  of  one- quarter 
per  cent,  for  ninety  days,  or  one-quarter  of  a  year,  and  for 
one  year  would  be  four  times  as  great,  to- wit:  one  per  cent. 

Of  course,  if  the  rate  for  checks  on  Germany  at  the 
maturity  of  his  ninety-day  sight  bills  should  have  declined 


Long  Time  Bills  Are  Demand  Loans.         63 

one- quarter  per  cent,  then  his  investment  would  have  netted 
only  three  and  one-half  per  cent,  per  annum. 

Query :  Why  does  the  rate  for  checks  enter  into  the  trans- 
action at  all?  The  manner  to  secure  return  of  the  money 
invested  in  long  time  foreign  bills  of  exchange  is  by  conver- 
sion of  the  long  time  bills  into  checks  or  demand  drafts. 
This  conversion  is  accomplished  in  one  of  two  ways,  namely: 
either,  the  long  time  bills  are  endorsed  by  the  purchasing 
banker  and  forwarded  for  credit  to  his  banker  for  discount, 
prior  to  maturity,  or  the  bills  are  retained  in  his  possession 
until  within  fifteen  days  of  maturity  and  then  endorsed  and 
forwarded  to  his  banker  for  his  credit;  and  in  either  case,  the 
purchasing  banker  would  then  be  enabled  to  reimburse  him- 
self for  the  amount  of  his  original  investment  in  long  bills  by 
issuing  his  checks  upon  his  German  banker  against  the 
proceeds  of  the  long  bills  remitted  to  his  correspondent  for 
his  credit,  and  selling  his  checks,  thus  issued,  in  the  open 
market. 

The  banker  never  loses  sight  of  the  fact  that  investments 
through  the  purchase  of  long  time  bills  of  exchange,  although 
issued  at  sixty  or  ninety  days'  sight,  are  practically  demand 
loans  and  available  at  a  moment's  notice  by  conversion  into 
checks,  as  just  described,  and  a  feature  especially  commending 
them  for  the  temporary  investment  of  loanable  funds. 

A  loss  to  the  investor  by  virtue  of  a  decline  in  the  price  of 
checks  is  rarely  occasioned,  owing  to  the  fact  that  in  almost 
all  cases,  the  purchase  of  the  long  bills  is  made  at  a  time 
when  the  rates  of  exchange  are  low,  in  consequence  of  the 
abundance  of  bills  offered  by  exporters,  and  explained  in  the 
early  part  of  the  present  Chapter,  and  as  the  life  of  the 
bills  is  sixty  or  ninety  days,  it  is  fair  to  assume,  that,  at 
some  time,  during  this  period,  either  the  price  for  checks 
will  have  advanced,  or  the  rate  of  discount  in  the  open  market 


64  International  Exchange. 

will  have  declined,  so  as  to  permit  the  investor  to  realize 
upon  his  long  bills,  by  conversion  into  checks,  at  an  addi- 
tional profit,  instead  of  a  loss. 

Should  the  investor  feel  assured  that  the  ease  of  the  local 
money  market  is  likely  to  continue  indefinitely,  and  is  satis- 
fied to  make  a  sixty  or  ninety-day  time  loan,  at  the  rate  of 
interest  underlying  the  purchase  of  long  time  bills  of  exchange 
for  checks  or  demand  drafts  which  may  exist  at  the  time 
when  his  long  bills  will  fall  due,  by  selling  for  "future 
delivery"  his  own  checks  for  an  amount  equal  to  his  holdings 
of  long  bills,  at  the  same  or  higher  price,  than  was  ruling  for 
checks  at  the  time  his  investment  in  long  bills  was  consum- 
mated, he  thereby  eliminates  the  one  speculative  or  uncertain 
factor  that  might  operate  to  his  disadvantage. 

Investments  in  foreign  bills  of  exchange  are  by  no  means 
confined  to  the  purchase  of  documentary  acceptance  bills,  such 
as  just  described,  but  are  accomplished,  also,  by  the  purchase 
of  sixty  or  ninety  days'  sight  drafts  drawn  by  bankers  in  this 
Country  upon  their  European  correspondents.  These  drafts 
are  ordinarily  issued  in  pounds  Sterling  upon  London  bankers. 
The  modus  operandi  is  identical  with  that  relative  to  docu- 
mentary acceptance  bills  in  Germany,  with  this  difference 
that  there  are  no  documents  attached  to  bankers'  bills. 

Capitalists  and  bankers  frequently  avail  themselves  of  the 
purchase  of  bankers'  long  Sterling  bills  for  the  temporary 
employment  of  their  surplus  funds,  and  investments  of  this 
nature  are  more  attractive  than  the  purchase  of  bonds  at  a 
high  price  in  a  cheap  money  market,  or  the  low  rate  of 
interest  on  bankers'  certificates  of  deposit. 

In  concluding  this  subject,  observe  that  it  is  not  necessary 
for  the  investor  to  remit  the  seconds  of  bills  of  exchange, 
previously  referred  to,  to  the  banker  to  whom  the  appertain- 
ing firsts  were  sent,  and  notice  that  the  latter  were  forwarded 


Allow  Ample  Time  for  Transit.  65 

merely  for  acceptance  and  retention,  subject  to  the  call  of 
the  endorsed  seconds,  consequently,  the  seconds  can  be 
endorsed  and  remitted  for  collection  and  credit  to  any  banker 
who  will  obtain  possession  of  the  firsts  by  the  presentation  of 
the  endorsed  seconds,  the  two  parts,  viz:  accepted  firsts  and 
endorsed  seconds  constituting  the  completed  bills. 

Great  care  should  of  course  be  exercised  in  keeping  an 
accurate  memorandum  of  the  dates  of  maturity  abroad  of  all 
bills  of  exchange  held  in  portfolio  for  investment,  so  that  by 
reference  thereto  it  can  be  readily  seen  what  bills  have  to  be 
extracted  for  remittance. 

All  bills  of  exchange  must  be  presented  to  the  drawees  (or 
acceptors)  for  payment  on  date  of  maturity  and  ample  time 
should  be  allowed  for  transit;  and  to  guard  against  a  possible 
delay  in  receipt  of  the  mail  with  endorsed  seconds  of  exchange 
forwarded  to  a  banker  for  collection  and  credit,  it  is  advisable 
to  allow  five  days  in  excess  of  the  ordinary  time  required  to 
reach  a  given  destination,  to  enable  the  banker  to  whom 
seconds  have  been  sent  to  procure  the  appertaining  accepted 
firsts  and  demand  payment  of  the  drawees  by  presentation  of 
the  completed  bills  on  date  of  maturity. 


Chapter  XI. 

MODERN  METHOD  TO  COLLECT  BILLS  UPON 
COUNTRIES    WHERE    AMERICAN 
BANKERS  HAVE  NO  ACTIVE 
ACCOUNTS. 

TT  THEN  the  foreign  agents  have  acceded  to  the  request 
'  of  the  American  banker  to  negotiate  drafts  under  his 
Travelers'  Letters  of  Credit,  as  set  forth  in  Chapter  XII, 
that  tie  will  lead  to  the  transaction  of  other  banking  business, 
such  as  the  collection  of  drafts,  and  while  such  collection 
constitutes  an  elementary  branch  of  banking,  freely  entrusted 
to  foreign  agents,  other  business  will  follow  from  such  ties 
that  place  the  American  banker  in  the  central  position  of 
having  international  agents. 

The  interest  on  the  amount  of  the  face  of  the  draft  for  the 
length  of  time  consumed  in  transit  is  the  essential  feature  to 
consider  in  the  collection  of  drafts,  but  the  factor  of  interest 
does  not  enter,  so  far  as  the  banker  is  concerned,  into  all 
transactions,  and  in  consequence,  drafts,  or  bills  of  exchange, 
are  divided  into  two  classes,  to -wit: 

Class  A.- 
Bills Purchased  Outright  from  Drawers,  or  from 
Persons  with  Title. 

The  interest  feature  concerns  the  purchasing  banker  of 
bills  bought  outright  in  this  that  his  money  paid  for  the  bills 
is  outstanding  until  receipt  of  returns. 


Sight  Draft  on  New  South  Wales.  6^ 

To  accurately  determine  the  amount  of  interest  to  be 
added  to  the  face  amount  of  bills  bought,  or  to  be  deducted 
at  the  time  of  purchase,  in  the  former  case  to  be  paid  by 
drawee  and  in  the  latter  by  drawer,  or  rightful  owner,  the 
banker  should  know  the  approximate  amount  of  time  con- 
sumed in  transit  to  and  from  all  foreign  nations,  and  should 
also  refer  to  his  schedule  of  steamer  sailings  to  avoid  loss  of 
time  in  failing  to  make  proper  connections. 

Example:* 

Suppose  a  sight  draft  for  $500  on  Sidney,  New  South 
Wales,  is  offered  for  sale.-*  What  price  shall  be  paid  for  it, 
less  loss  of  exchange,  collection  charges  and  loss  of  interest, 
and  at  the  request  of  the  seller  to  be  paid  by  himself;  or  in 
other  words,  all  those  expenses  to  be  deducted,  to  determine 
the  purchase  price  to  the  banker : 

The  seller  of  the  bill  would  receive  from  his  bank 

in  payment,         -  -  -  .  $500 

Less:  Interest  for  90  days,  approximate  time  in 
transit  to  and  from  Sidney  to  Chicago, 
@  6%  on  $500,     -  -  -  $7.50 

Commission,  bill -stamps,  and  exchange 
charged  by  Sidney  agents  for  collecting 
and  remitting  returns,  1%,  -  5. 

Forwarding  banker's  commission,  ^%,  2.50 

or  the  net  sum  of      -  -  -  -  $485 

In  turn,  the  banker  will  receive  his  returns  for  draft  by 
remitting  same  to  his  correspondent  at  Sidney,  and  whose 
name  is  found  by  referring  to  his  list  of  correspondents  under 
Letters  of  Credit,  to  be,  say.  The  Union  Bank  of  Australia, 
Limited,  requesting  said  Bank  to  collect  the  draft  and  remit 
proceeds  to  him  by  check  on  New  York  City. 

*  The  collection  charges  are  approximate. 


68  International  Exchange. 

In  due  course,  he  would  receive  its  New  York  draft 

for        -----.--         -       $500 
Less,  approximately,  the  charges  as  above,  5 

or,  the  net  amount  of         -        -        -        -        «  $495 

The  seller  was  paid  the  sum  of  $485,  and  the  profit  to  the 
bank  on  the  bill  would  be  $10,  being  $7.50  for  interest  and 
$2.50  for  commission. 

Had  the  seller  of  the  above  bill  demanded  the  face  net 
amount,  that  is,  $500  in  payment,  the  bill  would  have  been 
treated  in  exactly  the  same  manner  as  stated,  with  the 
exception  that  the  banker  would  have  added  to  the  face 
amount  of  $500: 

These  charges  would  appear  on  draft  itself. 

Ninety  days'  interest  at  6%  on  $500,  -  $7-5o 

Forwarding  banker's  commission,  ^7o  °"  $50o>        2.50 

and  the  collecting  banker  would  have  requested  his  Sidney 
agent  to  collect  exchange  and  its  charges  from  the  drawees 
to  enable  it  to  send  a  draft  on  New  York  City  for  $510,  so 
that  the  profit  to  the  collecting  bank  would  have  been  just 
the  same  as  in  the  other  case,  viz:  $10. 

To  enable  the  Sidney  agent  to  collect  its  charges  from  the 
drawees  without  difficulty,  the  banker  will  stamp  the  bill 
with  the  following  phrase: 

Payable  at  the  rate  of  exchange  for  bankers*  checks  on  New 
York  plus  commission,  stamps  and  other  charges. 

The  frequency  of  drafts  of  this  nature  collected  to  net 
the  drawers  the  face  amount  of  their  drafts  necessitates  the 
following  specimen  form  of  letter  to  address  to  the  foreign 
correspondents  effecting  the  collection : 


Collection  to  Net  Face  of  Draft.  69 


Specimen  Collection  Letter: 

Union  National  Bank, 

Chicago,  Illinois, ,190  . 


Gentlemen: 

Inclosed  please  to  find  for  the  favor  of  collection  and 

returns  by  cheque  on No 

for on. (protest  waived  in  case  of  dishonor), 

documents  to  be  surrendered  on  payment. 

We  have  added dollars  to  the  face  of  the  bill 

to  cover  our  commission  and  interest,  and  we  request  that 
you  collect  all  remaining  charges  from  the  drawees  to  permit 

you  to  remit  us^ dollars  net,  in  reimbursement, 

as  per  tenor  of  draft. 

Duplicate  bill  and  documents  will  be  forwarded  to  you  by 
next  mail. 

Yours  very  truly, 


70  International  Exchange. 

Bills  free  from  any  loss  of  interest  to  the  banker  include: 
Class  B: 

Bills   for   Collection   to   be  Accounted   for  to    Drawers 
or  Lawful  Holders  Upon  Receipt  of  Returns. 

These  bills  are  not  paid  for  by  the  banker  until  the  pro- 
ceeds have  been  received  from  his  foreign  correspondents  to 
whom  collection  was  entrusted,  and  the  interest  feature  does 
not  enter  into  the  transaction  so  far  as  the  banker  is  con- 
cerned. 

Should  the  seller  of  the  bill — of  like  amount  and  on  the 
same   drawee   as  the  bill  previously  treated — desire  to  be 
reimbursed  for  the  loss  of  interest    sustained  by  him,  and 
requests  collection  to  be  effected  to  realize  for  him  the  face 
net  amount  of  the  bill  of     -        -         -         -         $500. 

Plus  loss  of  interest  to  seller,         -         -  7.50 

Commission,  ^7o  ^^  forwarding  bank,         -        2.50 
Charges  in  Sidney  for  collecting,  1%,     -  5. 

$515. 
to  effect  collection  as  in  the  previous  case;  and  in  due  course, 
draft  on  New  York  City  from  his  Sidney  agent  would  be 
received  for        -         -         -         -         -        -         $515. 

Less  its  charges  as  above,  -         -         -  5- 

or,  New  York  draft  for,         -         -         -         $510. 
Deducting  charge  of  forwarding  bank,       -  2.50 

$507.50 
being  the  face  amount  of  the  draft,       -        -  500. 

Plus  interest, 7-50 

$507.50 


Collections  at  Drawer's  Expense.        71 

In  the  event,  however,  that  all  charges,  including  interest, 
were  to  be  assumed  and  paid  by  drawer  as  agreed  with 
drawee,  then  the  collection  of  the  draft  would  have  netted  the 
drawer,  as  follows: 

Draft  on  Sidney,  New  South  Wales,       -       $500. 
Less  charges  by  Sidney  agent,  i%,     -         -         5. 


$495- 


Amount  remitted  to  forwarding  banker  by 

New  York  draft,  -         -         -         -         $495. 
Less  his  commission  of  }4,%,      -        -  2.50 

leaving  net  proceeds  to  be  paid  to  drawer 

upon  receipt  of  returns  from  Sidney,      $492.50 

and  the  draft  would  have  been  remitted  by  the  banker  to 
his  Sidney  agent  without  any  mention  with  regard  to  charges, 
but  merely  for  collection  and  remittance  of  proceeds  by 
check  on  New  York  City. 

Had  the  draft  of  $500  on  Sidney  been  issued  for  ;^ioo 
Sterling,  as  drafts  on  British  colonies  frequently  are,  the 
various  operations  would  have  been  identical  with  the  excep- 
tion, that,  instead  of  asking  his  Sidney  correspondent  to 
remit  him  proceeds  by  check  on  New  York  City,  the  Ameri- 
can banker  would  have  requested  a  check  on  London  and 
marked  the  draft  accordingly. 

Explanation  has  preceded  of  the  different  ways  to  collect 
foreign  bills  of  exchange  drawn  upon  countries  where  no 
active  accounts  are  kept,  and  collection  of  all  bills  irrespective 
of  location  of  drawees  follows  like  modes  as  the  underlying 
principle  is  inclusive  and  general. 


72  International  Exchange. 

Should  the  bill  happen  to  be  drawn  upon  a  small  city 
where  no  Letter  of  Credit  correspondent  chanced  to  be,  then 
the  bill  should  be  forwarded  to  the  nearest  point  having  such 
correspondent. 

The  old  manner  pursued  by  American  bankers,  where  no 
active  accounts  existed  with  foreign  countries,  was  to  forward 
their  drafts  drawn  on  such  foreign  countries  to  London  for 
collection  and  credit,  whereas  today  the  new  way  is  to  collect 
such  drafts  direct. 


Chapter   XII. 
TRAVELERS'  LETTERS  OF  CREDIT. 

THE  modern  banker's  Letter  of  Credit  in  its  present  state 
is  the  production  by  many  bankers  whose  professional 
duties  have  qualified  them  to  supply  an  instrument  of  credit 
for  the  use  of  the  traveler;  and  although  its  underlying  basis 
of  credit  has  remained  intact  from  its  inception,  it  is  con- 
stantly undergoing  a  process  of  amendment  and  alteration, 
to  conform  to  requirements  and  needs,  not  formerly  existent. 

The  issuance  of  Letters  of  Credit  constitutes  one  of  the 
most  profitable  sources  of  revenue,  and,  nowadays,  no  well- 
equipped  foreign  department  is  considered  complete  unless 
in  a  position  to  furnish  such  Credits  to  the  traveling  public. 
This  feature  will  now  receive  full  exposition. 

The  initial  step  will  be  for  the  American  bank  to  request 
its  London  bankers  to  supply  it  with  a  List  of  their  Corres- 
pondents, appearing  as  agents  under  their  Traveler's  Credits, 
whom  the  American  bank  desires  to  address  for  the  purpose 
of  obtaining  their  consent  to  act  for  the  American  bank  in  a 
similar  capacity.  Upon  receipt  of  this  List  from  London,  the 
American  bank  forwards  a  circular  letter  to  the  banks 
mentioned  thereon,  informing  them  that  it  has  under  prepa- 
ration a  Traveler's  Credit,  and  inquires  if  it  would  be 
agreeable  to  them  to  place  their  name  upon  the  American 
bank's  appertaining  List  of  Correspondents,  at  the  same  time, 
inclosing  its  last  statement  and  referring  them  to  its  London 
bankers  for  any  information  regarding  the  American  bank. 

These  letters,  addressed  to  bankers  all  over  the  world,  will 
require  from  four  to  six  months'  time  before  complete 
returns  can  be  expected.  In  consequence,  there  will  be 
ample  time  in  the  interim  to  have  its  form  of  Letters  of 
Credit   lithographed   and    a   sufficient    number    stamped 

73 


74  International  Exchange. 

"Specimen"  to  enable  the  American  bank  to  send  one 
"Specimen"  with  sample  signatures  of  the  officers  authorized 
to  sign  the  Credits,  to  all  the  correspondents  replying  in  the 
affirmative,  in  answer  to  the  circular  letters  of  the  American 
bank. 


There  are  many  Credits  in  use  at  the  present  day,  but  the 
following  specimen  is  of  recent  construction,  and  has  been 
found  admirably  adapted  for  its  requirements,  under  actual 
use: 


Traveler's  Letter  of  Credit.  75 

Specimen  Letter  of  Credit: 
The  National  Bank  of  the  Republic  of  Chicago. 

No Chicago,  Illinois, ,  19 

£ Sterling. 

To  the  Manager: 

This  letter  will  introduce  to  you 

M 

in  whose  favor  we  have  opened  a  credit  of 

Sterling, 

and  whose  sight  drafts  to  that  extent  upon 

The  London  City  and  Midland  Bank,  Limited, 

of  London,  we  engage  shall  meet  with  due  honor,  if  nego- 
tiated within months,  from  this  date. 

The  amount  of  each  payment  you  will  please  endorse  on 
this  letter,  and  your  negotiation  of  the  draft  will  be  considered 
a  guarantee  that  the  requisite  endorsements  have  been  made. 
You  will  please  observe  that  all  such  drafts  be  drawn  against 
the  Letter  of  Credit  of  The  National  Bank  of  the  Republic, 
No 

This  letter  must  be  attached  and  remitted  with  the 
last  draft  drawn. 

Recommending  M 


to  your  usual  courtesy, 

Yours,  very  truly, 


To  Messieurs,  our  Correspondents,  and 
all  other  Banks  or  Bankers  to  whom 
this  Credit  may  be  presented. 


'j6  International  Exchange. 

N.  B.  The  bearer  is  advised  to  keep  the  List  of  Corres- 
pondents separate  and  apart  from  the  Letter  of  Credit  to 
prevent  both  from  being  lost  or  stolen  together,  also  to  affix 
immediately,  his  usual  signature  at  place  indicated  on  the 
inside  of  the  cover  of  the  List  of  Correspondents  as  a 
precaution  against  forgery  in  the  event  of  the  List  of  Corres- 
pondents or  Letter  of  Credit  falling  into  improper  hands. 
The  National  Bank  of  the  Republic  will  not  be 
responsible  for  the  consequences  arising  from  an  omission  by 
the  bearer  to  observe  these  precautions.* 

A  reproduction  of  the  reverse  side  of  the  Credit  follows, 
showing  the  manner  of  endorsement  for  the  respective 
amounts  drawn  under  Letters  of  Credit: 

Specification 
of  Payments  made  to  the  bearer  of  this  Letter  of  Credit. 


Paid  by 


Amount  in  Letters        Amount  in  Figures 


When  the  aggregate  endorsements  equal  the  face  amount 
of  the  Credit,  the  Credit  is  exhausted,  and  retained  and 
attached  by  the  negotiating  banker  to  the  last  draft  in 
accordance  with  tenor  of  Credit. 

The  signature  of  the  accredited  formerly  appeared  on  the 
face  of  the  Credit  for  identification,  and  the  List  of  Corres- 
pondents was  also  attached  to  the  Letter  of  Credit,  making 
the  Credit  complete  in  one  document. 

This  form,  while  still  in  use  to  a  limited  extent,  does  not 
embody  the  same  degree  of  safety  as  the  modern  Credit 
exhibited,  and  for  reasons  specified  at  the  foot  of  the  Credit; 
this  form  of  Credit  is  issued  in  two  parts:  the  relative  intro- 
duction of  the  beneficiary  is  on  the  front  inside  cover  where 
appears  also  the  specimen  signature  of  the  beneficiary,  and 
such  List  is  issued  separate  and  apart  from  the  Credit  proper. 

*  This  Note  follows  at  the  foot  of  "Specimen  Letter  of  Credit." 


List  Issued  in  Book  Form.  77 

The  next  exhibit  is  a  specimen  of  the  front  inside  cover  of 
the  List  of  Correspondents  and  is  issued  in  book  form  for  the 
traveler's  guidance;  appended  also  are  a  few  pages  taken  at 
random  from  the  List  of  Correspondents.  It  will  be  manifest 
at  a  glance  from  the  appertaining  Index  that  correspondents 
are  located  in  every  country  in  the  world  and  that  such 
agents  will  negotiate  drafts  under  Travelers'  Credits : 


Specimen  of  Front  Inside  Cover  of  List  of 
Correspondents: 

The  National  Bank  of  the  Republic 
OF  Chicago,  U.  S.  A. 


Chicago,  Illinois,. 

To  our  Correspondents  as  listed  herein: 
This  serves  to  introduce  to  you  Mr. 


19 


the  bearer  of  our  Letter  of  Credit,  No ,  a  specimen  of 

whose  signature  is  at  the  foot  hereof. 


(Signature  of  Bank's  Officer.) 


(Signature  of  holder  of  Credit.) 


78  International  Exchange. 


Specimen  Pages  from  List  of  Correspondents* 
Index. 

PAGE. 

Great  Britain  and  Ireland,  ._              _..              _»•              3 

Germany  and  Austria,        __  .-              ._              -»5 

France,          ._             ._  ._             ..             _„               8 

Spain  and  Portugal,           _.  ..             -«             ._I2 

Holland  and  Belgium,  .-             ..             ._             13 

Italy,     ._             --             ..  --             ..             .-     13 

Greece,          ..             .-  ->             --             .-             15 

Switzerland,          __             ..  _-             .-             ._I5 

Denmark,  Norway  and  Sweden,  ..             .«             16 

Russia  and  Finland,           ..  ..             ..             -_I7 

Turkey  in  Europe,  and  Balkan  States,  _>             18 

Turkey  in  Asia,                  ..  -_             -_             .,18 

Persia,           .-             _.  -.             .-             --             19 

Egypt,                  ..             ..  ..             .-             ..     19 

Africa,  continent,         ..  .-             -_             --             19 

Africa,  islands,     ._             ._  _-             --             _.2i 

India,  China,  Japan,  etc.,  ..             --             ..             22 

Australia  and  Tasmania,  ._             ._             ..25 

Sandwich  Islands,       _-  >.             ._             ._             25 

Fiji  Islands,         .-             -_  .-             .-             ..25 

New  Zealand,              ._  .-             ..             ._             25 

West  Indies,        ..              .-  --              .-              -.25 

South  America,           --  --             --             -_             27 

Mexico,                 ,.             .-  --             --             -.28 

Central  America,        ..  -_             --             --            29 

Canada,  etc.,         -.             _-  ..             --             -.29 

United  States,             --  --             ..             ..             30 


Birmingham, 

Bradford, 

Brighton, 

Bristol, 

Cardiff, 

Cheltenham, 

Coventry, 

Dublin,      - 

Edinburgh,    - 
Glasgow,    - 

Gloucester,    - 

Guernsey, 

Hull,     - 

Jersey, 

Leeds, 

Liverpool, 


London, 


Nottingham, 
Sheffield,       - 
Southampton, 
Swansea, 


British  Correspondents. 
Great  Britain  and  Ireland. 


79 


.  The  London  City  and  Midland 
Bank,  Limited. 


The  Royal  Bank  of  Ireland,  Ltd. 
[  Clydesdale  Bank. 


.  The  London  City  and  Midland 
Bank,  Limited. 


The  London  City  and  Midland 

Bank,  Limited,  and  Branches: 
Head  Office,  5  Threadneedle  Street. 


Bond  Street  Branch, 

34  Old  Bond  Street. 


Tottenham  Court  Road  Branch, 

159  and  160 

Tottenham    Court  Road. 


1 


LuDGATE  Hill  Branch, 

45  and  47  Ludgate  Hill. 

The  London  City  and  Midland 
Bank,  Limited. 


8o 


International  Exchange. 


Aachen, 

Altona, 

Augsberg, 

Baden-Baden, 

Badschwalbach, 

Berlin,  - 
Bonn, 

Bremen, 

Breslau, 

Brunn,  - 

Buda-Pesth, 

Carlsbad, 

Carlsruhe, 
Chemnitz, 


Germany  and  Austria. 

f  Aachener  Disconto  Gesellschaft. 
\  Bergisch  Markische  Bank. 

Depositenkasse  der  Dresdner  Bank. 

Leyherr  &  Co. 

G.  MuLLER  &  Sons. 

r  Koch,  Lauteren  &  Co. 
\  Marcus  Berle  &  Co. 

r  Dresdner  Bank. 
i  Deutsche  Bank. 

Westdeutsche  Bank. 

{Bremer  Bank,  Filiale  der  Dresdner. 
Bremer  Filiale  der  Deutschen  Bank. 
S.  Lurman  &  SOHN. 

f  ElCHBORN   &   Co. 

i  Breslauer  Wechsler  Bank. 


Anglo -Austrian  Bank. 

Credit  Anstalt,  Bohmische. 

EscoMPTE  Bank. 
]  Gebruder  Benedikt. 
[Gottlieb  Lederer. 

G.  MuLLER  &  Sons. 

Filiale  der  Dresdner  Bank. 


Credit  Correspondents. 
South  America. 


8i 


Bahia,  Brazil: 

London  and  Brazilian  Bank,  Limited. 
Barranquilla,  Columbia: 

Fergusson,  Noguera  &  Co. 
Berbice,  British  Guiana : 

British  Guiana  Bank. 
Bogota,  Columbia: 

Fergusson,  Noguera  &  Co. 
Buenos  Aires,  Argentina: 

London  and  Brazilian  Bank,  Limited. 
Campinas,  Brazil: 

London  and  Brazilian  Bank,  Limited. 
Georgetown,  British  Guiana: 

British  Guiana  Bank. 
Pard,  Brazil: 

London  and  Brazilian  Bank,  Limited. 
Pernambuco,  Brazil: 

London  and  Brazilian  Bank,  Limited. 
Pelotas,  Brazil : 

London  and  Brazilian  Bank,  Limited. 
Porto  Alegre,  Brazil : 

London  and  Brazilian  Bank,  Limited. 
Rio  de  Janeiro,  Brazil: 

London  and  Brazilian  Bank,  Limited. 
Rio  Grande  do  Sul,  Brazil: 

London  and  Brazilian  Bank,  Limited. 
Rosario,  Argentina: 

London  and  Brazilian  Bank,  Limited. 

Persia. 

Bush  ire, 

Ispahan,    - 
Meshed, 
Resht, 
Shiraz, 
Tabriz, 
Teheran, 
Yezd, 
6 


The  Imperial  Bank  of  Persia. 


82 


International  Exchange. 


Alexandria,  Egypt, 
Cairo,         -         n 
Port  Said,     -     n 


Africa. 

'  Bank  of  Egypt. 
Imperial  Ottoman  Bank. 
Credit  Lyonnais. 
Thos.  Cook  &  Son. 


Algiers,  Algeria: 

Credit  Lyonnais. 
Thos.  Cook  &  Son. 

Aliwal  North,  Cape  Colony: 

Standard  Bank  of  South  Africa,  Limited. 

African  Islands. 

Las  Palmas,  Gran  Canaria: 

Blandy  Bros.  &  Co. 
Teneriffe,  Canary  Islands: 

Hamilton  &  Co. 


Mojanga,  Madagascar: 

Comptoir  Nati'l  d'  Escompte  de  Paris. 
Port  Louis,  Mauritius: 

The  Bank  of  Mauritius,  Limited. 
Tamatave,  Madagascar: 

Comptoir  Nati'l  d'  Escompte  de  Paris. 


Oriental  Correspondents,  Ss 


India,  China,  Japan,  etc. 

Amoy,  China: 

Hong  Kong  and  Shanghai  Banking  Corporation. 
Bangkok,  Siam : 

Hong  Kong  and  Sh.\nghai  Banking  Corporation. 

Chartered  Bank  of  India,  Australia  and  China. 

Batavia,  Java: 

Chartered  Bank  of  India.  Australia  and  China. 
Bombay,  India: 

Comptoir  National  d'  Escompte  de  Paris. 

Chartered  Bank  of  India,  Australia  and  China. 
Calcutta,  India: 

Chartered  Bank  of  India,  Australia  and  China. 

Comptoir  National  d'  Escompte  de  Paris. 

Colombo,  Ceylon. 

Chartered  Bank  of  India,  Australia  and  China- 
Delhi,  India: 

Delhi  and  London  Bank,  Limited. 


84  International  Exchange. 

Should  two  or  more  persons  travel  together,  Credits  may 
be  issued  in  their  joint  and  several  names,  so  as  to  enable 
either  beneficiary  to  draw  against  the  Credit. 

All  Credits  issued  must  be  immediately  advised  to  the 
London  bankers  upon  whom  such  Credits  are  drawn,  and  at 
the  same  time,  a  specimen  signature  of  the  person  in  whose 
favor  the  Credit  is  issued  must  be  forwarded  to  the  London 
bankers;  such  specimen  signature  is  filed  for  the  purpose  of 
determining  whether  drafts  drawn  upon  them  against  Credits 
are  genuine,  by  comparing  the  signature  on  the  draft  with 
the  signature  on  file  received  from  the  American  banker. 

The  subjoined  form  is  in  general  use,  and  combines  the 
advice  of  the  Letter  of  Credit  and  specimen  signature  of  the 
holder: 


(Name  of  Bank. ) 

Chicago,  Illinois, ,  19 . 

The  London  City  and  Midland  Bank,  Limited, 

London. 

To  the  Manager: 

Below  please  find  signature  of 


.,  to  whom  we  have  issued 


Circular  Letter  of  Credit,  No ,  for  £. 

to  be  in  force months. 

Respectfully, 


Signature  of 


(Signature  Officer  of  Bank.) 


(Holder  of  Credit.) 


How  Letters  of  Credit  are  Used.  85 

These  Letters  of  Credit  are  used  by  the  holders  thereof  in 
this  way: 

Suppose  the  holder  were  at  Delhi,  India,  and  had  in  his 
possession  one  of  these  Credits,  and  desired  some  money. 
He  would  refer  to  the  List  of  Correspondents  and  find  that 
the  Correspondent  in  Delhi  was  the  Delhi  and  London  Bank, 
Limited.  He  would  go  to  this  Bank  and  present  to  it  his 
Credit,  together  with  the  List  of  Correspondents,  and  request 
it  to  pay  him,  say,  the  equivalent  of  ten  pounds,  Sterling 
(approximately  $50).  The  Delhi  and  London  Bank,  Limited, 
would  prepare  for  him  a  sight  draft  upon  the  London  City 
and  Midland  Bank,  Limited,  London,  for  ten  pounds.  Sterling, 
payable  to  their  own  order,  to- wit:  Delhi  and  London  Bank, 
Limited,  specifying  on  the  draft  that  it  was  "drawn  against 

Letter  of  Credit,  No. ,  issued  by  the  Chicago  bank, 

dated  Chicago,  Illinois, ,  ig ,"  and  such  sight 

draft  would  be  handed  to  him  for  his  signature. 

After  careful  comparison  of  his  signature  on  the  draft,  with 
his  signature  on  the  List  of  Correspondents,  the  latter  being 
to  identify  him,  the  Delhi  and  London  Bank,  Limited,  would 
pay  him  the  equivalent  of  ten  pounds  Sterling  in  rupees,  the 
money  of  India  (see  Chapter  XXVIII,  "Monetary  Units  of 
the  World"),  and  endorse  the  amount  of  ten  pounds,  Sterling, 
on  his  Letter  of  Credit  and  return  to  him  his  Credit  and  List  of 
Correspondents,  and  the  transaction  is  over  so  far  as  the 
holder  is  concerned. 

The  Delhi  and  London  Bank,  Limited,  would  reimburse 
itself  for  the  amount  paid  him  by  remitting  his  draft  on 
London  to  its  London  office  for  collection  and  credit.  The 
London  agent  of  the  American  bank,  the  London  City  and 
Midland  Bank,  Limited,  upon  presentation  of  such  draft  to  it 
for  payment,  would  compare  the  signature  on  the  draft  with 
the  signature  on  file,  and  if  genuine  would  pay  the  draft  and 
charge  same  to  the  account  of  the  American  bank,  and 
forward  such  draft  to  the  Chicago  bank^  which,  upon  receipt 


86  International  Exchange. 

of  same,  would  reimburse  itself  in  one  of  the  three  following 
ways,  dependent  upon  the  terms  and  conditions  agreed  upon 
by  the  beneficiary  at  the  time  of  issue  of  his  Letter  of  Credit. 

Terms  of  Issue. 

Having  presented  all  the  preliminary  work  incident  to  the 
issuance  of  Credits,  and  explained  the  manner  of  use,  the 
terms  and  conditions  of  their  issue  by  the  American  bank  to 
persons  applying  for  such  Letters  of  Credit  follow : 

I.  At  the  current  selling  rate  of  exchange  for  bankers'  checks 
on  London,  plus  one  per  cent,  commission;  the  unused  portion, 
if  any,  to  be  bought  back  from  the  holder  of  the  Credit  on  its 
return,  at  the  current  buying  rate  of  exchange  for  bankers* 
checks  on  London ; 

II.  Against  deposit  of  collateral  for  an  amount  of  sufficient 
value  to  cover  the  face  amount  of  the  Credit,  drafts  drav/n 
against  Credits  issued  on  this  basis  are  charged  to  a  temporary 
book  account  in  the  name  of  the  holder  of  the  Credit,  at  the 
current  selling  rate  of  exchange  for  London  checks,  plus  one 
per  cent,  commission,  and  thirty  days'  interest  at  current  rate. 
Adjustment  of  the  account  to  be  made  upon  surrender  of  the 
Credit; 

III.  Against  a  satisfactory  guarantee  of  reimbursement  for 
all  drafts  drawn  against  the  Credit,  immediately  upon  receipt 
of  notice  of  drafts  pcAd  abroad,  at  the  current  selling  rate  for 
bankers'  London  checks,  plus  one  per  cent,  commission,  and 
thirty  days'  interest  at  current  rate;  the  latter  charge  is  calcu- 
lated to  covor  the  approximate  time  between  payment  abroad 
and  the  arrival  of  a  remittance  or  reimbursement. 

The  largest  number  of  Credits  are  issued  to  applicants, 
against  guarantee;  supra  III,  and  a  specimen  form,  therefore, 
is  submitted  of  the  obligation  usually  taken  to  cover  the 
requirements. 


Conditions  of  Guarantee.  87 


Specimen  Form  of  Guarantee. 


(Name  of  Bank. ) 

Chicago,  Illinois, ,  19 — 

To  the  Cashier: 

Having  received  from  you  a  Traveling  Credit  in  favor  of 


for , hereby  agree  to  reimburse 

you  on  demand  for  any  drafts  that  may  be  drawn  under  the 
same,  together  with  usual  charges. 

In  case  this  Credit  be  lost  or  stolen, .hereby  authorize 

you  to  send  the  usual  circular  to  your  correspondents  notify- 
ing them  of  the  loss,  and  to  take  such  precaution  as  you  may 

deem  advisable  for  the  prevention  of  fraud,  and agree 

to  pay  any  expenses  attending  the  same,  and  in  case  of  the 
cashing  of  any  drafts  by  any  banker,  under  the  usual  precau- 
tions, and  before  the  receipt  of  any  such  circular, agree 

to  indemnify  you  for  any  loss  therefrom. 
Yours,  very  truly, 


(Signature  of  Guarantor.) 


Chapter  XIII. 
COMMERCIAL  LETTERS  OF  CREDIT. 

THESE  Instruments  of  Credit  are  designed  for  the  use 
and  requirements  of  the  importers  in  this  Country  to 
effect  payment  for  merchandise  purchased  by  them  from  the 
exporters  of  foreign  countries. 

Commercial  Letters  of  Credit  are  issued  in  pounds  Sterling 
on  England,  marks  on  Germany,  or  francs  on  France,  accord- 
ing to  the  wishes  of  the  parties  concerned,  but  as  the  Sterling 
Credit  is  negotiable  throughout  the  world,  exporters  as  a  rule 
demand  Sterling  Credits.  Attention,  therefore,  will  be  con- 
centrated to  the  Sterling  Credit,  the  underlying  principles 
being  applicable  also  to  Credits  issued  in  marks  or  francs. 

The  popularity  of  the  Commercial  Letter  of  Credit  is 
increasing  from  year  to  year,  because  its  employment  as  a 
means  of  payment  for  imported  wares  secures  accrued  advant- 
ages and  benefits  to  both  importers  and  exporters,  not 
afforded  by  any  other  mode  of  reimbursement ;  to  enumerate 
the 

Advantageous  Features  Derived  by  Importers  Through 

the  Use  of  a  Commercial  Letter  of  Credit: 

I.  Merchandise  can  be  purchased  in  any  part  of  the  globe  on 
a  cash  basis,  although  actual  payment  of  the  cost  of  goods 
imported  will  not  be  demanded  of  the  importers,  by  the  banker 
furnishing  the  Credit,  until  maturity  of  respective  drafts  drawn 
by  the  exporters,  being  from  one  to  six  months  after  date  of 
acceptance  of  drafts,  according  to  tenor  of  relative  Letter  of 
Credit; 

II.  Shipments  of  merchandise  must  be  made  by  exporters 
within  a  stipulated  time,  and  evidence  of  each  shipment  must 
be  furnished  to  the  drawees  under  the  Letter  of  Credit  in  the 
form  of  bills  of  lading,  consular  invoices,  etc.,  and  must  be 


Benefits  to  Exporters.  89 

attached  to  respective  drafts,  covering  cost  of  merchandise,  to 
insure  the  acceptance  of  the  drafts,  upon  presentation  to 
drawees; 

III.  Advance  orders  may  be  given  by  importers  with  export- 
ers for  the  manufacture  of  goods,  according  to  the  specifications 
and  requirements  of  the  importers,  without  pre- payment  of  the 
value  of  the  goods  ordered,  or  a  cash  deposit,  the  Commercial 
Letter  of  Credit  being  sufficient  security  in  the  hands  of  the 
exporters,  provided  same  has  been  <<  confirmed"  by  the  drawees 
under  the  Credit. 

Commercial  Letters  of  Credit  that  have  been  confirmed  by 
the  drawees  to  the  payees,  or  beneficiaries,  can  not  be  revoked 
or  canceled  without  the  consent  of  such  payees,  or  benefici- 
aries; and  drafts  drawn  against  the  respective  Credit  must  be 
accepted  by  drawees,  to  the  extent  of  the  value  of  the 
merchandise  manufactured,  or  in  course  of  manufacture,  by 
the  payees  of  the  Credit,  prior  to  their  receipt  of  cancelation 
or  revocation  of  Credit. 

Benefits  Accruing  to  Exporters  of  Merchandise  under 
Commercial  Letters  of  Credit: 

I.  The  exporters  receive  cash  payment  for  all  merchandise 
ordered  under  Credits  on  the  date  of  shipment,  that  is  to  say, 
drafts  covering  the  cost  of  merchandise,  even  if  issued  for  a 
specified  time  after  sight,  in  terms  with  Credit,  can  be  con- 
verted into  cash  by  discounting  such  drafts  with  their  local 
bankers,  and  such  conversion  will  be  explained  in  due  course; 

II.  The  exporters  may  enter  into  the  manufacture  of  goods 
for  future  delivery,  or  make  shipments,  as  fast  as  goods  are 
manufactured,  according  to  contract  with  purchasers,  since  a 
confirmed  Letter  of  Credit  is  an  absolute  guarantee  of  payment. 

Before  entering  upon  a  detailed  description  of  a  transaction 
under  a  Cammercial  Letter  of  Credit,  a  specimen  form  of  a 
type  of  Credit  is  first  submitted  as  follows : 


90  International  Exchange. 

Exhibit  I. 
Specimen  Commercial  Letter  of  Credit. 

The  National  Bank  of  the  Republic  of  Chicago. 

;^io,ooo.  Chicago,  Illinois,  June  25,  1903. 

To  Messrs.  JOHN  C.  ADAMS  &  Co.,  No.  G.  C.  102. 

Smyrna,  Asiatic  Turkey. 
Genileinen: — We  hereby  authorize  you  to  value  on  The 
London  City  and  Midland  Bank,  Limited,  in  London  at  sixty 
days'  sight,  for  any  sum  or  sums  not  exceeding  in  all,  10,000 

pounds,  Sterling,  for  invoice  cost  of  figs  and  dates, 

. _for  account  of  Henry  Smith  &  Co., 


Chicago , goods  to  be  shipped  to  the  United  States. 

The  Bills  of  Lading  must  be  issued  to  the  order  of  the  shipper 
and  endorsed  in  blank. 

The  shipment  must  be  completed  and  the  bills  drawn 
within  six  months  from  this  date,  and  the  advice  thereof,  in 
duplicate, sent  to  The  LondonCityand  Midland  Bank, Limited, 
London,  accompanied  by  one  Bill  of  Lading  and  abstract  of 
Invoice,  and  on  receipt  of  these  documents,  the  Bills  will  be 
duly  honored. 

The  remaining  Bills  of  Lading  with  certified  Invoices  and 
Consular  Certificates  must  be  sent  direct  to  Messrs.  G.  W. 
Sherwood  &  Co.  of  New  York  City,  for  account  of  The 
National  Bank  of  the  Republic  of  Chicago,  and  a  certificate 
to  that  effect  must  accompany  draft. 

We  hereby  agree  with  the  drawers,  endorsers,  and  bona- fide 
holders  of  drafts  drawn  under  and  in  compliance  with  the 
terms  of  this  Credit,  that  the  same  shall  be  duly  honored  upon 
presentation  at  the  office  of  The  London  City  and  Midland 
Bank,  Limited,  London. 

Drafts  under  this  Credit  must  bear  upon  their  face  the 
words:  "Drawn  under  The  National  Bank  of  the  Republic  of 
Chicago,  Credit,  No.  G.  C.  102, dated  June  25,  1903." 

Insurance  effected  here,     -n  ,.c  11 

KespecttuUy  yours. 


(Signature  of  Bank's  Officer.) 


Credits  Issued  in  Four  Parts.  91 

These  Credits  are  issued  in  four  parts,  viz:  one  original  is 
forwarded  by  the  importers  to  the  exporters,  the  parties  accred- 
ited under  the  terms  of  the  Credit;  and  three  copies  are  dis- 
tributed as  follows:  one  copy  is  sent  to  the  drawees,  the 
London  bankers  who  are  authorized  to  protect  drafts  drawn 
against  the  Credit,  together  with  instructions  to  accept  drafts 
in  accordance  with  the  terms  and  conditions  of  the  Credit; 
another  copy  is  delivered  to  the  importers  for  their  files ;  and 
the  remaining  copy  is  retained  by  the  banker  issuing  the  Credit 
for  his  archives. 

The  copies  held  by  the  importers  and  the  issuing  banker 
have  the  following  agreement,  signed  by  the  importers,  on 
the  reverse  side  of  the  Credit: 


92 


International  Exchange. 


Exhibit  II. 
Form  of  Agreement  for  Commercial  Letters  of  Credit. 


Chicago,  June  25,  1903. 


To- 


Gentlemen: — Having  received  from  your  Bank  Letter  of 

Credit,  No.  102,  for  ten  thousand pounds,  Sterling, 

on  London, copy  whereof  is  herewith  annexed,  we 

hereby  agree  to  its  terms  and  in  consideration  thereof  bind 
ourselves  to  reimburse  your  Bank  for  any  draft  or  drafts 
drawn  thereunder,  fifteen  days  prior  to  maturity  thereof,  at 
the  current  rate  of  exchange  for  first-class  Bankers'  Bills.  It 
is  understood  that  the  commission  for  accepting  under  this 
Credit  shall  be  one  per  cent,  on  drafts  at  sixty  days'  sight. 

We  hereby  give  you  a  specific  claim  and  lien  on  ail  goods 
and  merchandise,  and  the  proceeds  thereof,  for  which  you 
may  have  paid  or  come  under  any  engagements  under  this 
Credit,  and  on  all  policies  of  insurance  which  we  agree  to 
effect,  on  such  goods  and  merchandise  to  an  amount  sufficient 
to  cover  your  advances  or  engagements  under  this  Credit,  and 
on  all  bills  of  lading  given  for  same,  with  full  power  and 
authority  to  take  possession  and  dispose  of  the  same  at  discre- 
tion, for  your  security  or  reimbursement,  and  to  charge  all 
expenses  including  commission  for  sale  and  guarantee;  and 
we  further  agree  to  give  you  any  additional  security  that  may 
be  demanded;  and  we  further  pledge  to  you  as  security  for 
any  other  indebtedness  of  ours  to  you,  any  surplus  that  may 
remain,  either  in  goods  or  the  proceeds  thereof,  after  providing 
for  the  acceptance  under  this  Credit. 

We  further  authorize  you  to  cancel  this  Letter  of  Credit  at 
any  time  to  the  extent  that  it  shall  not  have  been  acted  upon 
when  notice  of  revocation  is  received  by  the  user. 

This  obligation  shall  continue  in  force  and  be  applicable  to 
all  transactions,  notwithstanding  any  change  in  the  individuals 
composing  the  respective  firms,  the  parties  to  this  contract, 
or  either  of  them,  or  in  that  of  the  user  of  this  Credit,  whether 
such  change  shall  arise  from  the  accession  of  one  or  more 
new  partners,  or  from  the  death  or  secession  of  any  partner 
or  partners.      Yours  respectfully, 

(Signed)     Henry  Smith  &  Co. 


How  Credit  is  Used.  93 

Consider  that  Henry  Smith  &  Co.  have  obtained  from 
their  bankers  the  Credit  shown  as  Exhibit  I  for  ;^  10,000,  in 
favor  of  John  C.  Adams  &  Co.  of  Smyrna,  to  be  drawn 
against,  by  drafts  at  sixty  days'  sight  on  London,  for  the  cost 
of  figs  and  dates,  to  be  shipped  within  six  months  from  date 
of  Credit. 

Assume  the  bills  of  lading  covering  shipments  to  be  made 
out  to  the  order  of  the  shipping  exporters,  John  C.  Adams  & 
Co.  of  Smyrna,  and  by  them  endorsed  in  blank,  so  as  to  assign 
title  and  possession  of  goods  shipped,  to  the  holders  of  ladings. 

Suppose  also  that  on  July  15,  the  first  shipment  is  made 
by  John  C.  Adams  &  Co.,  the  value  thereof  amounting  to 
;!^585,  and,  thereupon,  John  C.  Adams  &  Co.  issue  a  draft  for 
that  amount,  attach  properly  executed  documents,  and  pre- 
sent same,  together  with  respective  Letter  of  Credit  to  their 
local  banker  for  negotiation. 

The  Smyrna  banker  will  carefully  examine  the  draft  and 
appertaining  documents,  to  determine  that  all  papers  are  in 
conformity  with  the  terms  of  Credit,  and,  if  found  correct, 
purchases  the  draft  from  John  C.  Adams  &  Co.,  at  the  current 
rate  of  exchange  for  sixty  days*  sight  drafts  on  prime  London 
bankers.  The  Smyrna  banker  will  endorse  the  amount  of 
the  draft  for  ;{^585  on  the  Credit,  and  return  the  letter  to  his 
clients  for  subsequent  use.  This  terminates  the  transaction 
so  far  as  John  C.  Adams  &  Co.  are  concerned  with  respect  to 
this  particular  shipment. 

The  draft  has  now  become  the  property  of  the  Smyrna 
banker  who  immediately  forwards  the  Original,  (drafts  are 
always  issued  in  two  parts,  Original  and  Duplicate,)  together 
with  all  relative  documents,  in  terms  with  Credit,  to  his 
London  correspondents,  for  presentation  to  drawee  for  accept- 
ance, to  fix  date  of  maturity  without  delay. 


94  International  Exchange. 

The  duplicate  draft,  the  Smyrna  banker  may  either  endorse 
to  his  London  correspondents  and  remit  same  to  them  for 
the  credit  of  his  account  under  discount,  or  hold  same  in  his 
portfolio,  for  future  remittance,  interest  in  the  meantime 
accruing  to  his  benefit,  at  the  rate  of  interest  upon  which  the 
purchase  of  the  draft  was  based,  or  he  can  immediately  resell 
the  draft  in  the  open  market  in  Smyrna,  whichever  suits  his 
convenience. 

The  procedure  of  the  London  banker,  named  as  drawee  in 
the  Credit,  and  who  has  been  instructed  to  accept  all  drafts 
for  account  of  the  American  bank  by  whom  the  Credit  was 
issued,  follows: 

Having  found  the  draft  of  ;^585  issued  at  sixty  days'  sight 
by  John  C.  Adams  &  Co.  of  Smyrna,  and  relative  documents 
in  order,  the  London  banker  has  accepted  the  draft  on  the 
day  of  presentation,  say,  July  20,  to  mature  September  22, 
including  three  days  of  grace,  and  has  charged  the  same, 
temporarily,  to  the  bill  or  acceptance  account  of  his  American 
correspondent  who  issued  the  Credit,  to  be  transferred  to  the 
debit  of  cash  or  current  account  at  maturity,  and  prompt 
notification  of  his  acceptance  with  full  details,  has  been 
forwarded  to  his  American  correspondent. 

The  documents,  that  were  attached  to  the  draft  of  £s^S> 
are  immediately  forwarded  by  the  London  banker,  in  com- 
pliance with  the  terms  of  the  Credit,  to  G.  W.  Sherwood  & 
Co.  of  New  York  City,  who  are  the  custom  house  brokers  for 
Henry  Smith  &  Co.  of  Chicago,  together  with  instructions 
that  the  documents  are  sent  to  them  at  the  request,  and  for 
the  account  of  the  Chicago  banker  who  issued  the  Credit. 
Duplicate  documents  will  doubtless  already  have  reached 
G.  W.  Sherwood  &  Co.  from  the  banker  in  Smyrna,  who 
negotiated  the  draft  for  John  C.  Adams  &  Co.,  in  accordance 
with  the  tenor  of  the  Credit,  accompanied  by  similar  instruc- 
tions. 


Duties  of  New  York  Agents. 


95 


The  duties  of  G.  W.  Sherwood  &  Co,  the  custom  house 
brokers  of  New  York  City,  follow: 

Upon  receipt  of  the  documents,  the  New  York  agents  await 
the  arrival  of  the  steamer,  named  in  the  bill  of  lading,  wherein 
the  merchandise  has  been  shipped,  to  enable  them  to  effect 
clearance  through  the  United  States  Custom  House,  if  goods 
are  subject  to  duty,  and  reship  the  goods  as  per  instructions 
previously  given  them  by  their  clients,  Henry  Smith  &  Co. 
of  Chicago. 

The  New  York  agents  will  be  very  careful  to  follow  the 
orders  of  the  banker  in  Chicago  who  issued  the  Credit,  so  as 
not  to  permit  the  merchandise  to  get  out  of  his  possession,  or 
in  any  way  to  impair  his  first  lien  on  the  goods,  unless  instruc- 
tions to  the  contrary  have  been  received  by  them  from  the 
Chicago  banker. 

By  this  time,  the  Chicago  banker  will  doubtless  have 
received  from  his  London  correspondent  advice  pertaining  to 
the  acceptance  of  draft  for  £s^5  and  immediately  communi- 
cates such  advice  to  Henry  Smith  &  Co.  of  Chicago,  taking 
concurrently  a  Trust  Receipt  from  them,  as  his  security  and 
hen  on  the  merchandise  delivered  to  them;  a  specimen  form 
of  such  Trust  Receipt  is  submitted  as  follows; 


96  International  Exchange. 

Exhibit  III. 
Specimen  Trust  Receipt. 

Chicago,  Illinois,  July  31,  1903. 

Received  from* the  merchandise 

specified  in  the  bill  of  lading  per  S.  S.  Herculean,  dated  July 

15,  1903, 1000  boxes  figs,  marked  H.  S.  &  Co., 

Chicago,   1000  boxes  dates,  marked  H.  S.  &  Co.,  Chicago, 

and  in  consideration  thereof,  we 

hereby  agree  to  hold  said  goods  in  trust  with  liberty  to  sell 
the  same,  and  in  case  of  sale  to  hand  the  avails  as  soon  as 

received  to  the  * 

as  security  for  due  provision  for  the  acceptances  of  The  London 
City  and  Midland  Bank,  Limited,  of  London,  on  our  account 
noted  at  foot,  and  we  further  pledge  to  them  said  goods  and 
the  proceeds  thereof  as  the  security  for  the  payment  of  any 

other  indebtedness  of  ours  to  * 

We  further  agree  to  keep  said  property  insured  against 

fire,  payable  in  case  of  loss  to  * with 

the  understanding  that  said  Bank  shall  not  be  chargeable 
with  any  expenses  incurred  thereon,  the  intention  of  this 
arrangement  being  to  protect  and  preserve  unimpaired  the 

lien  of* on  said 

property. 

(Signed)    Henry  Smith  &  Co. 

Memorandum  against  acceptance  under 
Letter  of  Credit,  No.  102, 
;^585,  maturing  abroad,  September  22,  1903, 
due  and  payable  here,  September  7,  1903. 

•Name  of  Bank. 


Commissions  Letters  of  Credit. 


97 


The  delivery  of  the  goods  against  Trust  Receipt  depends 
upon  the  standing  and  financial  responsibility  of  Henry  Smith 
&  Co.  If  the  firm  is  possessed  of  large  means  and  enjoys 
high  credit,  this  form  of  security  is  deemed  quite  ample,  but 
If  the  Chicago  banker  does  not  consider  them  sufficiently 
strong  to  entitle  them  to  the  possession  of  the  merchandise 

.nnT/^r'  "^°u  '^"  ^"°''  ^""^  warehoused  upon  arrival 
and  that  the  warehouse  receipt  be  issued  in  his  name. 

In  this  manner,  the  Chicago  banker  can  retain  the  absolute 
possession  and  control  of  the  merchandise  imported,  making 
deliveries  from  the  warehouse,  from  time  to  time,  to  such 
parties  as  Henry  Smith  &  Co.  may  instruct,  against  collateral 
or  cash  payment  for  the  value  of  goods  delivered. 

On  September  7,  under  terms  of  Credit,  fifteen  days  prior 
to  maturity  of  the  draft  for  ^585.  the  Chicago  banker  will 
collect  from  Henry  :,mith  &  Co.  the  amount  due  him,  at  the 
current  rate  of  exchange  for  bankers'  checks  on  London  plus 
commission  for  the  draft  of  ^585  and  by  so  doing  terminate 
cne  transaction. 

To  speak,  in  closing  this  Chapter,  to  the  question  of  profits 
der,ved  from  Commercial  Letters  of  Credit,  it  follows  as  a 
matter  of  course  that  the  commission  charged  for  their 

'^Trr','r°Ti  '°  **=  ^'""^'"^  of  the  apph-cants 
for  such  Credits  and  the  tenor  of  the  drafts  to  be  drawn 
thereon,  and  that  the  commission  therefor  is  a  matter  of 
negotiation  between  the  parties  concerned. 


Chapter  XIV, 

SYSTEM  OF  ISSUING  DRAFTS  UPON  ALL  THE 

COUNTRIES  OF  THE  WORLD  WHERE 

NO   ACTIVE   ACCOUNTS   OF 

DRAWERS  ARE  KEPT. 

ACTIVE  accounts  are  usually  kept  in  and  limited  to  Eng- 
land, Germany,  France,  Austria,  Holland,  Belgium, 
Switzerland,  Italy,  and  the  Scandinavian  countries,  affording 
facilities  for  the  issuance  of  drafts  upon  the  leading  cities 
of  those  countries. 

Advertisements  of  banks,  frequently,  read  in  substance  like 
this:  "Drafts  issued,  payable  in  all  the  leading  cities  of  the 
world,"  and  the  manner  of  their  issue  is  the  subject  for  present 
consideration. 

Chapter  XII,  devoted  to  Travelers'  Letters  of  Credit, 
outlined  the  necessary  procedure  to  secure  correspondents  in 
every  part  of  the  globe  to  act  as  agents  for  the  negotiation 
of  drafts,  drawn  on  London,  issued  against  American  Letters 
of  Credit.  All  foreign  agents,  acting  in  this  capacity  for 
American  banks,  have  in  their  possession  the  specimen  signa- 
ture of  the  officers  of  each  bank  for  their  guidance. 

The  relations  entered  into  by  American  banks  with  all  of 
their  foreign  agents  will  not  be  confined  exclusively  to  the 
primary  object,  the  protection  of  American  Travelers'  Letters 
of  Credit,  but  may  be  extended  to  include  other  transactions 
within  the  province  of  banking,  and  American  banks  as  a 
matter  of  course  will  avail  themselves  of  the  services  of  their 
foreign  correspondents,  whenever  occasion  demands. 

The  book  appertaining  to  American  Letters  of  Credit, 

containing  the  List  of  Correspondents  abroad,  also  represents 

98 


Draft  on  India.  99 

the  names  of  world-wide  agents  upon  whom  request  may  be 
made  to  negotiate  drafts  issued  by  American  bankers. 

Quotations  are  not  current  covering  the  rates  of  exchanges 
on  the  various  countries,  and  without  cash  balances  at  the 
disposal  of  the  American  banker  there,  it  would  not  be 
advisable  to  issue  drafts  payable  in  the  money  of  the  respective 
countries,  but  issue,  instead,  drafts  on  the  London  corres- 
pondents of  the  American  banker,  payable  in  pounds,  Sterling, 
marked  on  their  face:  "This  draft  will  be  negotiated,  upon 

presentation,  by "  (inserting  the 

name  of  agent). 

To  illustrate:  A  customer  of  a  Chicago  bank  calls  and 
desires  to  purchase  a  draft  on  Calcutta,  India,  for  500  rupees, 
a  rupee  being  the  monetary  unit  of  India.  By  reference  to 
Chapter  XXVIII  showing  the  tabulated  Monetary  Systems  of 
the  World,  it  will  be  found  that  the  approximate  value  of  the 
rupee  is  thirty-three  cents;  hence  500  rupees  would  be  worth 
500  times  thirty- three  cents,  or  $165.  The  transaction  now 
converts  itself  into  selling  the  Chicago  customer  a  draft  on 
London  payable  in  pounds,  Sterling,  for  the  equivalent  of 
$165  at  the  current  rate  of  exchange  of  the  day.  Assume 
that  the  rate  is  $4.88  a  pound.  Sterling,  and  since  $4.88  will 
buy  one  pound,  Sterling,  $165  will  buy  as  many  pounds  as 
$4.88  is  contained  in  $165,  or  33.812  times,  equal  to  33  pounds 
16  shillings  and  3  pence,  expressed  ;^33.i6/3  Sterling — see 
Table  pertaining  to  conversion  of  Sterling,  expressed  deci- 
mally, to  shillings  and  pence. 

The  agent  at  Calcutta  is,  say,  the  Chartered  Bank  of  India, 
Australia  and  China,  and  the  London  correspondent  of  the 
American  bank  is  The  London  City  and  Midland  Bank, 
Limited,  the  Chicago  bank  would  then  sell  its  customer  a 
draft  for;£'33.i6/3  Sterling,  drawn  upon  The  London  City  and 
Midland  Bank,  Limited,  "London,"  marked  Hv^ross  its  face: 
"This  draft  will  be  negotiated,  upon  presentation,   by  the 


100        International  Exchange. 

Chartered  Bank  of  India,  Australia  and  China,  Calcutta, 
India,"  in  payment  thereof  the  Chicago  bank  would  receive 
$165. 

As  drafts  on  London  are  in  demand  and  negotiable  by- 
bankers  in  all  parts  of  the  civilized  world,  the  Calcutta 
correspondent  will  cheerfully  negotiate  the  drafts  of 
the  Chicago  bank,  paying  the  equivalent  in  rupees 
(the  money  of  India),  at  the  current  rate  of  exchange  for 
bankers'  checks  on  London,  to  the  payee,  and  the  Calcutta 
bank  in  turn  would  reimburse  itself  by  remitting  the  London 
draft  for  collection  and  credit,  to  its  London  agents,  or  selling 
such  draft  in  the  open  market. 

The  Chicago  bank  would  advise  the  draft  to  its  London 
correspondent  on  date  of  issue,  and  also  forward  simultaneous 
advice,  together  with  request  of  negotiation,  to  its  agent  in 
Calcutta. 

Of  course,  the  above  draft  could  have  been  issued  by  the 
Chicago  bank  for  500  rupees  upon  its  Calcutta  agent  direct, 
and  in  that  event  would  have  requested  it  to  protect  the  draft, 
and  reimburse  itself  for  its  equivalent  by  drawing  its  own 
draft  for  account  of  the  Chicago  Bank  upon  its  London 
correspondent,  authorizing  the  latter  to  honor  to  its  debit, 
the  draft  of  the  Chicago  bank,  giving  the  approximate  amount 
of  valuation  of  draft,  being  in  this  case  thirty-four  pounds. 
But,  as  the  Chicago  bank  would  have  to  sustain  the  loss  of 
exchange  by  virtue  of  conversion  of  rupees  into  Sterling  by 
this  method  of  procedure,  and  for  the  other  reasons  previously 
stated,  in  all  cases  it  is  recommended  that  the  issuance  of  drafts 
on  London  be  made  payable  in  pounds,  Sterling,  as  outlined 
above;  especially  will  it  be  well  to  note  this  recommendation 
with  respect  to  the  issuance  of  all  drafts  on  countries  on  a 
silver  monetary  basis. 

Illustration:  a  suppositious  sale  of  a  draft  on  Mexico,  a 
country  on  a  silver  basis,  to  emphasize  the  danger  of  loss  of 


Time  Limitation  for  Silver  Payments.        ioi 

exchange,  as  the  result  of  conversion  previously  referred  to, 
that  the  drawer  of  a  draft  may  sustain  were  the  draft  issued 
by  him  in  the  monetary  unit  of  the  country  where  payable, 
instead  of  in  pounds,  Sterling,  on  London. 

In  February  last,  a  certain  banker  sold  a  draft  on  Mexico 
City  payable  in  Mexican  dollars  at  the  rate  of  37^  cents  per 
Mexican  dollar,  advising  the  draft  on  date  of  issue  to  his 
correspondent  in  Mexico,  and  requesting  reimbursement  of 
its  equivalent  by  draft  upon  his  New  York  bankers.  The 
banker  was  cognizant  of  the  fact  that  the  value  of  the 
Mexican  dollar  was  subject  to  sudden  and  violent  fluctuations, 
and  knowing  this,  endeavored  to  protect  himself  from  a 
possible  loss  by  charging  his  customer  a  price  in  excess  of  the 
current  rate  of  exchange  for  the  Mexican  dollar,  and  in  so 
doing  believed  himself  amply  protected. 

In  due  course,  his  Mexican  correspondent  acknowledged 
receipt  of  advice,  relating  to  draft  issued,  and  informed  him 
that  the  draft  would  be  promptly  protected  upon  presentation, 
and  reimbursed  for,  in  the  manner  desired  on  the  date  of 
payment  of  same. 

Instead  of  the  draft  being  presented  for  payment,  within 
the  usual  time,  it  was  held  by  the  payee,  who  happened  to  be 
the  purchaser,  until  April  the  fifteenth.  During  the  inter- 
vening time,  February  to  April,  1903,  the  price  of  silver 
steadily  advanced  so  that  the  Mexican  dollar  sold  by  the 
banker  and  represented  by  his  draft  issued  in  February,  at  the 
rate  of  37^  cents,  was  quoted  and  converted  in  April  by  his 
correspondent  in  Mexico  City  at  the  rate  of  38^  cents 
resulting  in  a  loss  to  the  banker  issuing  the  draft  of  1^  cents 
on  each  dollar  less  the  accrued  interest  on  the  money  paid 
for  the  draft  during  its  circulation.  Had  the  banker  antici- 
pated or  foreseen  the  long  delay  of  time,  intentional  or  other- 
wise, occasioned  from  date  of  issue  to  date  of  payment  and 
reimbursement  of  this  draft,  he  could  have  protected  himself 
in  one  of  the  following  ways: 


I02        International  Exchange. 

I.  Demanded  an  excessively  heavy  premium  above  the  current 
rate  of  exchange  for  the  price  of  Mexican  dollars  on  the  date  of 
issue  of  the  draft; 

II.  Or  would  have  covered  the  sale  by  a  simultaneous  remit- 
tance to  drawee  of  an  equivalent  amount  of  Mexican  dollars, 
for  the  credit  of  his  account,  pending  the  presentation  and 
payment  of  the  draft  sold  ; 

III.  Or,  instead  of  issuing  draft  in  Mexican  dollars,  would 
have  given  the  purchaser  his  draft  on  London  for  the  equiva- 
lent in  pounds,  Sterling,  or  draft  on  New  York  City  for  the 
equivalent  in  American  dollars,  gold; 

and  in  all  cases  there  should  be  written  across  the  face  of  the 
draft:  "This  draft  will  be  negotiated,  upon  presentation,  by 

. ,"  inserting  name  of  the 

Mexican  correspondent,  and  treated  in  the  manner  as  previ- 
ously explained. 

If  the  applicant  for  a  draft  on  a  country  on  a  silver  basis 
insists  upon  having  a  draft  payable  in  the  money  of  the 
respective  country,  the  banker  selling  the  same  will  protect 
himself,  either  by  remittance  on  date  of  sale  to  the  drawee, 
as  outlined  in  Paragraph  II  supra,  or  by  limitation  of  the 
period  of  time  within  which  the  draft  should  be  presented  to 
drawee  for  payment. 

To  illustrate:  a  draft  on  Mexico  City  sold  in  Chicago 
should  under  the  ordinary  circumstances  be  presented  to  the 
drawee  within  six  days  of  the  date  of  issue,  so  that  allowing 
four  days'  leeway,  the  limitation  of  time  of  payment  should 
be  ten  days,  and  the  draft  should  read  on  its  face,  "This 
draft  must  be  presented  for  payment  to  drawee  within  ten  days 
of  date  of  issue,  otherwise,  payment  will  be  refused,"  and 
advised  accordingly  to  the  drawee. 


Drafts  on  Pan-American  Countries.         103 

In  this  manner,  purchases  of  drafts  payable  in  countries  on 
a  silver  basis,  in  the  money  of  the  country,  can  not  be  held 
by  purchasers,  or  other  persons  obtaining  title,  thereto,  on  the 
underlying  basis  of  a  speculation  in  the  value  of  silver,  beyond 
the  time  of  the  date  of  sale  of  draft  to  within  the  time  of 
limitation,  with  respect  to  payment,  thereof,  because  the  drafts 
would  be  sold  upon  the  condition  of  time  limitation  of  payment 
by  drawees,  and  would  have  to  be  referred  for  redemption  to 
the  drawers,  upon  the  basis  of  the  original  sale,  after  the 
expiration  of  the  time  limit. 

Where  drafts  are  desired  for  payment  in  the  Pan-American 
countries,  drafts  may  be  issued  on  New  York  City  payable 
in  American  dollars,  gold,  instead  of  on  London,  payable  in 
pounds,  Sterling,  marked  on  the  face  as  follows:  "This  draft 

will  be  negotiated,  upon  presentation,  by 

»" — here  insert  the  name  of  correspondent. 

New  York  exchange  is  equally  as  available  by  bankers  in 
the  Pan-American  countries,  as  London  exchange,  since 
Pan-American  bankers  have  New  York,  as  well  as  London, 
agents,  nowadays. 

Drafts  of  this  nature  should  be  advised  to  the  New  York 
correspondents,  if  the  banker  issuing  the  obligation  is  in  the 
habit  of  advising  his  drafts,  and  a  request  to  negotiate  the 
paper  should  be  addressed  to  the  Pan-American  corres- 
pondents specified  as  drawees  on  the  face  of  the  drafts. 


Chapter  XV. 

NEW  YORK  CITY  PRACTICALLY  ABSORBS  BY 

PURCHASE  ALL  AMERICAN  FOREIGN 

EXCHANGE. 

NEW  York  City  is  the  purchasing  center  of  practically  the 
entire  amount  of  Foreign  Credit  balances  created  by 
Foreign  Bills  of  Exchange  purchased  by  bankers  throughout  the 
United  States. 

New  York  City  is,  indeed,  the  financial  metropolis  of  the 
United  States  of  America;  and  it  is  safe  to  say,  that  there 
is,  perhaps,  no  feature  pertaining  to  banking  throughout  the 
Country  so  dependent  upon  New  York  financiers,  as  Foreign 
Exchange. 

The  very  foundation  of  this  branch  of  banking  is  constructed 
by  the  New  York  bankers,  and  from  their  banking-houses 
emanate  the  basic  prices  and  quotations  upon  which  foreign  bills 
are  bought  and  sold  throughout  the  United  States. 

It  is  the  custom  of  New  York  foreign  exchange  brokers  to 
furnish  their  Western  clients,  direct,  or  through  their  local 
representatives,  daily  market  quotations,  and  to  promptly 
advise  them  of  fluctuations  throughout  the  day.  So  closely  is 
the  West  allied  to  the  East,  in  this  respect,  that  any  inter- 
ruption caused  by  delayed  or  suspended  telegraphic  service, 
immediately  superinduces  a  practical  stand -still  of  exchange 
transactions,  and  operations  thereafter  must  necessarily  be 
made  in  the  "dark"  until  free  communication  is  again  renewed 
between  the  cities. 

In  the  Chapter  on  "Foreign  Exchange,"  the  total  amount 
of  foreign  exchange  purchased  by  Chicago  bankers  was 
estimated  in  round  numbers  at  approximately  $500,000,000 
annually.  A  fair  proportion  of  that  amount,  required  by  local 
importers  in  payment  of  merchandise  purchased  abroad,  and 

104 


The  Chicago  Market.  105 

by  local  banks  for  reifmbursement  of  amounts  drawn  against 
their  Travelers'  and  Commercial  Letters  of  Credit,  would  be 
twenty  per  cent.,  or  $100,000,000;  and  the  remainder,  or 
$400,000,000,  is  sold  in  the  New  York  market. 

The  importation  of  goods  by  local  merchants  is  not  as  small 
as  the  above  figures  would  indicate,  for  the  reason  that  a  large 
portion  of  imported  wares  are  either  purchased  from  New 
York  agents  of  European  firms,  or  are  paid  for,  by  the  pur- 
chase of  foreign  exchange  in  New  York  City  by  the  Eastern 
representatives  of  local  merchants. 

From  this  fact  it  will  be  observed,  that  indirectly,  the  New 
York  City  bankers  materially  assist  in  financing  the  foreign 
bills  of  exchange,  issued  by  the  large  exporters,  and  that  the 
condition  of  the  Chicago  bankers  without  such  cooperation 
by  the  New  York  City  financiers  would  soon  become  congested 
to  such  a  degree  as  to  preclude  the  negotiation  by  local 
bankers  of  foreign  exchange. 

The  absorptive  power  of  the  New  York  market,  to  digest  not 
only  the  surplus  foreign  exchange  of  the  Chicago  market,  but 
that  of  the  entire  United  States  as  well,  has  been  demonstrated 
for  many  years. 

The  reason  for  this  can  be  attributed  to  the  fact  that  Inter- 
national Trade  Balances  are  at  the  present  day,  and  always 
will  be,  adjusted  by  the  financiers  of  New  York  City. 


Chapter   XVI. 

LONDON   AGENCIES   OF    EUROPEAN 

CONTINENTAL   BANKING   INSTITUTIONS. 

THERE  are  branch  offices  of  practically  all  the  large 
European  continental  banking  institutions  in  the  City 
of  London.  What  has  created  the  demand  for  the  establish- 
ment of  these  agencies? 

Admitting  that  the  international  relations  of  the  various 
countries  are  of  magnificent  dimensions,  and  in  consequence 
thereof,  payments  for  exports  of  the  merchants  of  the  different 
countries  are  made  by  remittances  from  all  parts  of  the  world, 
drawn  upon  London  in  pounds,  Sterling,  the  facilities  for 
collecting  these  items  through  their  own  branch  offices  in 
London,  would  not  be,  in  themselves,  a  sufficient  incentive. 
Such  collections  could  be  made  through  the  medium  of 
London  correspondents,  in  like  manner,  as  American  bankers 
are  doing  today.     What,  then,  are  the  reasons.?     To  explain: 

English  Money  Market  Open  to  all  Countries. 

The  London  agency  is  a  most  valuable  adjunct  to  the  parent 
European  continental  banking  institution  for  the  outlet  of 
loanable  funds,  at  times  when  conditions  are  more  favorable 
for  the  employment  of  money  in  the  English  market  than  at 
home. 

The  month  of  January,  1903,  affords  an  excellent  basis  for 
illustration: 

In  that  month,  private  discounts  reached  the  low  rate  of 
one  and  three-quarters  per  cent,  per  annum  in  Germany, 
while  the  rate  in  London  was  about  four  per  cent,  per  annum. 

Under  those  conditions,  it  can  be  plainly  seen,  that  it  was 
much  more  profitable  for  the  German  banker  to  employ  his 

106 


European  Markets  all  Open  to  America.    107 

money  by  discounting  bills  in  the  London  market  than 
discounting  paper  at  home. 

In  addition  to  the  difference  between  the  discount  rates, 
the  German  banker,  remitting  money  to  his  London  branch 
office,  by  the  purchase  in  Germany  of  sight  drafts  on  London, 
when  the  rate  of  exchange  was  as  low  as  M.  20.45^  per  pound 
Sterling,  realized  an  additional  profit  of  seven  pfennig  on 
every  pound  Sterling,  as  the  above  condition  soon  forced  the 
price  of  sight  drafts  on  London  to  20  marks,  52^  pfennig, 
the  export  price  from  Germany  to  England  for  bullion,  as 
gold  could  be  profitably  forwarded  at  the  latter  rate. 

The  European  continental  banker,  availing  himself,  at 
favorable  times,  of  making  London  loans,  by  discounting 
Sterling  bills  of  exchange  through  the  channels  of  his  London 
office,  does  practically  the  same  thing  that  the  American 
foreign  exchange  banker  does  by  his  purchase  of  "Foreign 
Bills  of  Exchange  for  Investment,"  and  explained  fully  in 
Chapter  X. 

The  difference  being,  that  the  American  banker  is  not 
obliged  to  open  an  office  for  this  purpose  in  London,  as  he 
can  accomplish  practically  the  same  thing  at  his  desk,  with 
the  advantage,  however,  that  he  has  the  entire  European 
money  markets  at  his  disposal  and  is  not  exclusively  confined 
to  the  English  market. 

As  a  matter  of  fact,  the  European  continental  banker  in 
London,  frequently  discounts  the  same  piece  of  paper  that  has 
been  held  in  the  portfolio  of  the  American  banker,  for  a 
portion  of  the  life  of  the  paper,  and  it  is  the  unexpired  time 
of  the  draft  to  maturity  that  is  discounted  by  the  branch 
London  banker. 

This  is,  indeed,  a  peculiar  state  of  affairs,  and  will  doubt- 
less be  met  by  the  inquiry:     How  is  it  possible  that  the 


io8  International  Exchange. 

American  banker  can  transact  such  exchanges  at  home,  that 
require  the  German  or  French  banker  to  be  domiciled  in 
London  to  accompHsh?  The  reply  is:  that  the  opportunities 
afforded  the  American  banker  for  negotiating  the  immense 
amount  of  foreign  bills  of  exchange  drawn  against  exports  to 
the  various  European  countries,  particularly  England,  are  not 
presented  to  the  German  and  French  bankers,  as  the  exports 
from  their  respective  countries  are  mainly,  to  different  parts 
of  the  globe,  and  are  paid  for,  in  different  manner. 

Of  course,  in  addition  to  discounting  bills,  the  foreign  London 
banker  can  make  loans  direct  to  local  merchants  and  transact 
a  general  banking  business,  just  the  same,  for  example,  as  the 
New  York  agencies  of  Canadian  banking  institutions,  serve 
their  home  offices. 


Chapter  XVII. 

THE  ENGLISH  ACCOUNT. 

TN  its  colossal  proportions,  the  English  Account  towers 
-^  over  all  other  European  banking  connections  with 
American  banking  institutions,  and  the  larger  percentage  of 
all  international  banking  transactions  of  the  United  States, 
directly  and  indirectly,  is  recorded  in  its  folios. 

The  success  of  the  Foreign  Department,  at  least  from  a 
financial  standpoint,  is  dependent  upon  its  results,  and  London 
bankers,  unlike  their  continental  neighbors,  have  not,  as  yet, 
departed  from  their  custom  of  charging  a  commission  for 
conducting  foreign  accounts,  although  concessions  by  the 
London  banks  have  been  made  in  this  direction  within  the 
last  few  years. 

The  leading  English  banks  exacted  formerly  a  commission 

of  about  one- sixteenth  per  cent,  on  all  items  clearing  through 

the  account  and  an  extra  commission  for  paying  drafts  drawn 

against  Travelers'  Letters  of  Credit,  but  at  the  present  day, 

accounts  can  be  opened  on  much  more  favorable  terms.     Of 

course  this  is  a  matter  for  negotiation  between  the  contracting 

parties,  and  the  rate  of  commission  to  be  paid  is  governed  by 

the  aggregate  amount  of  business  cleared  through  the  account 

and  the  nature  of  the  transactions.     Were  the  account  that  of 

a  prominent  bank,  doing,  or  expecting  to  do,  a  large  foreign 

exchange  business,  no  difficulty  should  be  encountered  in 

obtaining  the  following  terms  and  conditions  from  the  London 

banker: 

109 


no  International  Exchange. 


Terms  and  Conditions  of  the  English  Account. 

Documentary  bills  of  exchange,        1/40%  commission ; 

Checks  and  other  cash  items  not  )    tt         r  •    • 

.J.J  ^      >    rree  of  commission; 

accompanied  by  documents,   j  ' 

Encashment  of  drafts,  drawn  1 

under   Travelers'  Letters   of  >    1/40%  commission; 
Credit,  ) 

Accepting  drafts,  drawn  under  ^ 

covered  Commercial  Letters  >    1/16%  commission; 
of  Credit,  J 

Interest   on    cash    credit  \    1°/^    below    Bank    of 

balances,  j  England  rate; 

Interest  on  cash  debit  balances,  ^ 

secured  by  unmatured  docu-  (    Bank  of  England  Rate, 
mentary  bills  held  in  portfolio  r'         or  i^  above, 
for  collection,  ) 

Postage  and  all  telegraphic  expenses  incurred  to  be  debited 
to  the  account. 


Innovation  as  to  European  Account.        hi 

A  recent  departure  from  the  foregoing  conventional  scale 
of  commission  was  manifested  by  an  offer  from  one  of  the 
foremost  European  banks  to  conduct  the  account  of  an  Ameri- 
can bank  free  from  any  commission,  and  in  lieu  of  that 
concession    the   account    should    always   show   a   stipulated 
minimum  cash  credit  balance  whereon  no  interest  was  to  be 
allowed;   such  an  arrangement  would  permit  the  European 
banker  to  make  time  loans  with  the  money  thus  pledged,  and 
the  interest  accruing  thereon  would  represent  his  compensa- 
tion for  handling  the  account.     At  a  glance  it  will  be  seen 
that  the  amount  of  money  thus  hypothecated  would  have  to 
be  for  an  amount  sufficiently  large,  so  that  its  earning  capacity, 
at  a  comparatively  low  rate  of  interest,  would,  approximately, 
offset  the  loss  sustained  in  waiving  the  usual  charge  of  commis- 
j   sion.     Under  this  plan,  the  American  bank  in  whose  name 
/t  ?<>the  account    is    opened    would   be  compelled  to  tie  up  this 
'c  S  *  amount  of  money,  and  would  not  be  in  a  position  to  avail 
Sf  *  ^  itself  of  a  favorable  exchange  market  by  checking  to  the  full 
^  i  I  extent  against  its  cash  funds  abroad,  and  furthermore,  would 
,^  '■  *    be    fostering    unsafe    banking    methods   by   rendering   this 
lit  i  a    pledged  cash  balance  unavailable,  even  in  times  of  emergency. 
J       This  proposition,  therefore,  is   one   that   can  not  be  recom- 


^ 


mended. 

English  Account  on  Commission  Basis. 

It  is  much  more  advisable  for  the  American  bank  to  pay 
its  correspondent  a  fair  remuneration  for  its  services,  and  be 
privileged  to  withdraw  its  funds  at  any  and  all  times,  upon 
demand,  being  a  prerogative  that  a  conservative  banker  should 
never  relinquish  under  any  circumstance  or  consideration. 

Assuming  that  the  American  bank  has  established  London 
connections,  on  the  commission  basis,  as  outlined  above,  the 
actual  working  of  this  account  follows: 

The  foreign  exchange  broker  has  made  his  first  call  and  the 
American  bank  has  received  its  London  cablegram  showing 
that  its  operations  of  the  day  must  be  based  on  the  following 
market  quotations : 


112 


International  Exchange. 


Factors  Controlling  Daily  Exchange  Operations. 

Bank  of  England  discount  rate,       47^  per  annum; 


Private  rate  of  discount  for  long 
time  drafts  on  prime  English 
banks  or  bankers  to  be  dis- 
counted upon  arrival, 

Private  rate  of  discount  for  long 
time  drafts  on  prime  mercan- 
tile English  firms  to  be  dis- 
counted upon  arrival, 


3K7o  per  annum; 


SHX  per  annum; 


Private  rate  of  discount  for  short  ^ 

time  drafts  on  prime  mercan-  /       ,  ,0  / 

tile  English  firms  to  be  dis-  r  3%  /o  per  annum; 

counted  upon  arrival,  ) 

Retirement  rate,  or  the  rate  of^ 
discount  allowed  drawees  of  j 
Documentary  Payment  Bills  !  «, 
as  a  rebate  for  the  payment  C  ^ /o  per  annum; 
or  retirement  of  bills  prior  to 
maturity, 

The  price  for  demand  drafts  of\ 

the  American  bank  on  Lon-  /    $4.88  per  pound, 
don  to  be  sold  to  New  York  C  Sterhng: 

banks,  •  j 

The   price   bid  by  New  York  ^    ct    oot/ 

bankers   for  cable    transfers  I  ^^fJS^^  per  pound, 
on  London,  J         Sterhng. 


Proper  Way  to  Purchase  Bills.  113 

Since  the  private  discount  rates  of  London  bankers  fluctuate 
from  day  to  day,  according  to  the  monetary  condition,  all 
conservative  American  bankers  have  entered  into  arrangement 
whereby  their  London  correspondents  are  requested  to  furnish 
daily  telegraphic  quotations  at  which  they  are  willing  to 
discount,  upon  arrival,  the  bills  of  exchange  purchased  by 
their  American  friends  on  the  basis  of  these  quotations.  It 
is  the  custom,  in  order  that  the  London  correspondents  may 
know  to  what  extent  discount  rates  have  been  secured,  to 
inform  them  by  telegraph  at  the  close  of  each  day's  business 
the  aggregate  amount  of  bills  bought  during  the  day.  It 
will  be  readily  understood  that  this  is  the  proper  and  safe 
way  to  purchase  bills,  for  it  completes  the  entire  transaction 
and  insures  the  profit  on  which  the  purchase  was  based.  Of 
course,  there  are  times  when  it  may  appear  advisable  not  to 
secure  the  rate  of  discount  but  to  speculate  on  same  during 
the  transit  of  the  bills,  basing  expectations  on  a  lower  market 
upon  arrival. 

This  method  of  doing  business  should  not  be  encouraged, 
involving,  as  it  does,  an  element  of  speculation,  always  to  be 
avoided  if  the  business  is  to  be  conducted  on  a  strictly  legiti- 
mate banking  basis;  and  furthermore,  the  London  banker^  a 
better  judge  of  the  discount  market,  being  in  closer  toucn 
therewith,  will  usually  give  his  American  correspondent  the 
benefit  of  his  opinion  by  reflecting  same  in  the  quotations 
furnished  the  American  bank,  particularly  when  as  in  many 
cases,  the  American  banker  has  more  than  one  London 
correspondent,  and  such  agent  knows  that  business  from  the 
American  banker  is  secured  on  a  competitive  basis. 

The  rate  of  discount,  of  course,  varies,  according  to  the 
tenor  of  the  bill  and  the  name  of  the  drawee  or  acceptor.  A 
bill  drawn  upon,  and  accepted  by  a  prime  bank  or  banker, 
will  always  be  discounted  at  a  lower  rate  than  a  bill  drawn 
upon  and  accepted  by  a  first-class  merchant.  And,  although 
the  drawers  and  endorsers  of  bills  of  exchange  are  not  released 


114        International  Exchange. 

from  their  joint  and  several  liabilities  until  the  final  payment 
of  such  bills,  it  is  a  well-established  fact  that  the  rate  of 
discount  is  determined  by  English  bankers  from  the  names 
of  the  acceptors.  The  position  of  the  American  banker 
purchasing  the  bills,  however,  is  quite  different,  inasmuch  as 
his  security,  when  the  bill  is  not  accompanied  by  documents, 
lies  entirely  in  the  name  and  financial  strength  of  the  drawers, 
and  endorsers,  if  any,  until  the  bill  has  been  accepted,  which 
ordinarily,  is  about  twelve  days  after  the  purchasa,  conse- 
quently he  will  carefully  scrutinize  these  names,  and 
thoroughly  familiarize  himself  with  the  financial  responsibility 
of  such  drawers  and  endorsers,  if  any,  before  making 
purchase. 

Short  bills,  that  is  to  say,  bills  maturing  from,  say,  three  to 
thirty  days  from  date  of  acceptance,  usually  command  a  higher 
rate  of  discount  than  bills  running  for  a  longer  period  of  time. 
This,  however,  is  not  alv/ays  the  case,  and  is  governed  by  the 
money  market. 

The  reason  why  short  bills  are  not  generally  taken  at  as 
low  a  rate  of  discount  as  bills  for  longer  life,  is  because 
bankers  discounting  them  are  averse  to  re -discounting  them 
in  the  open  market  and  hold  them  in  portfolio  until  maturity, 
whereas  they  have  no  hesitancy  in  offenng  long  bills  for 
re- discount  in  the  open  market.  There  are  times  when 
money  is  plenty,  and  bankers  generally  desire  to  make  short 
loans  at  a  lower  rate  of  interest  than  they  would  be  willing  to 
take  for  long  loans,  and  it  is  when  conditions  of  this  nature 
exist,  that  short  bills  can  be  discounted  to  better  advantage 
than  paper  of  longer  life. 

A  discount  house  may  have  contracted  to  discount  a  large 
amount  of  bills  for  an  American  correspondent  at  a  rate  of 
three  and  one- half  per  cent,  "to  arrive."  These  bills  are  still 
in  transit  and  will  not  arrive  in  London  for,  say,  three  days 
hence.     Owing   to   an  unexpected  supply  of  funds  seeking 


Retirement  Rate  of  Discount.  115 

investment  in  the  London  money  market,  discounts  have 
eased,  and  are  now  ruling  at  three  per  cent.,  so  that  the 
discount  house,  having  secured  a  line  of  bills  from  its  Ameri- 
can friends,  a  Tew  days  before,  at  a  three  and  one-half  per 
cent,  rate,  is  now  enabled  to  place  the  bills  for  delivery  within 
three  days,  in  the  open  market  at  three  per  cent,  the  difference 
being  their  profit  in  the  transaction. 

Documentary  Payment  Bills. 

One  class  of  bills  not  discountable  (except  indirectly — as 
hereinafter  set  forth)  in  the  London  money  market  are  known 
as  documentary  payment  bills,  and  are  drawn  by  exporters 
upon  English  merchants  against  shipments  of  merchandise, 
the  underlying  bills  of  lading  and  other  appertaining  docu- 
ments accompanying  the  respective  drafts,  with  specific 
instructions  that  the  documents  are  to  be  surrendered  to  the 
drawees,  only  on  payment  of  the  drafts. 

The  drawee  of  these  drafts  has  the  privilege  of  retiring,  or 
paying  same,  at  any  time  during  the  life  of  the  drafts,  under 
a  rebate  for  the  unexpired  time  from  the  date  of  retirement 
to  maturity,  at  what  is  called  the  retirement  rate  of  discount. 

The  retirement  rate  of  discount  is  ordinarily  one  per  cent, 
below  the  Bank  of  England  discount  rate,  but  is  not,  as  is 
frequently  erroneously  stated,  arrived  at  in  this  manner.  It 
is,  however,  dependent  upon  the  rate  of  interest  allowed  on 
short  time  deposits  by  the  leading  London  joint-stock 
companies,  and  always  is  one -half  per  cent,  in  excess  of  this 
rate. 

The  question  is  raised:  Why  is  it,  that  documentary  pay- 
ment bills  can  not  be  discounted.''  The  reasons  are  these: 
the  conservatism,  of  the  English  discount  houses  preclude 
their  discounting  any  form  of  paper  that  can  not  be  readily 
realized  upon  by  re -discounting,  in  case  of  an  emergency,  and, 
because  the  date  of  payment  is  not  fixed;    such  payment   is 


ii6  International  Exchange. 

optional  with  the  drawee,  and  he  may  pay  the  draft  one 
day  after  his  acceptance,  or  he  may  not  pay  it  until  maturity. 

If  the  goods  securing  the  draft  are  non-perishable  and  the 
drawee  has  no  immediate  need  for  them,  such  goods  are 
warehoused  and  are  not  withdrawn  until  the  drawee  actually 
requires  the  goods  for  delivery,  and  has  obtained  possession 
of  the  relative  documents,  by  payment  of  the  draft. 

It  is  for  this  reason  that  the  draft  must  remain  in  the 
possession  of  the  banker,  originally  presenting  it  for  accept- 
ance, and  holding  it  at  the  pleasure  of  payment  by  the  drawee 
or  acceptor,  so  that  he  may  know  where  the  draft  is  payable 
when  the  time  comes  that  he  desires  to  acquire  ownership  of 
the  appertaining  merchandise  by  payment  of  the  draft. 

The  Bank  of  England  Discount  Rate. 

This  term  is  applied  to  the  minimum  rate  at  which  the 
Bank  of  England  will  discount  bills. 

The  rate  is  fixed  by  the  Directors  of  the  Bank  on  Thurs- 
day of  each  week.  Directors'  meetings  rarely  take  place  on 
any  other  day,  except  in  times  of  disquietude,  when  special 
meetings  may  be  called.  The  Bank  of  England  rate  is  far- 
reaching  in  its  effects,  as  the  monetary  conditions  throughout 
the  entire  world  are  directly  or  indirectly,  materially  or  senti- 
mentally, affected  by  it.  This  rate  acts  as  the  barometer  of 
the  financial  conditions  of  the  various  nations,  and  any  factors 
of  political  or  financial  significance  are  reflected  by  its  course. 

The  power,  that  the  Bank  of  England  possesses  in  controll- 
ing the  discount  market  both  of  Great  Britain  and  the  conti- 
nental centers  as  well,  is  forcibly  demonstrated  by  the  fact, 
that  in  three  instances,  only,  during  the  past  twenty  years, 
has  the  Bank  of  England  discount  rate  reached  six  per  cent., 
and  for  ten  years  from  1882  to  1892,  five  per  cent,  was  the 
highest  official  rate  recorded.*  The  stability  of  the  London 

*  Except  from  February  2,  1882,  to  February  23,  1882,  and  from  December 
30,  1889,  to  February  20,  1890,  when  the  rate  was  six  per  cent,  per  annum. 


Power  of  the  Bank  of  England.  117 

money  market  can  not  be  more  clearly  illustrated,  because, 
during  this  period  of  time,  many  disturbing  elements  trans- 
pired, that  would  have  created  havoc  with  the  monetary 
conditions  of  any  other  country,  not  protected  by  the  practi- 
cally unlimited  power  of  the  Bank  of  England,  to  control  the 
situation,  through  its  influence. 

To  give  an  idea  of  the  importance  attached  to  the  fluctua- 
tions of  the  discount  rate  of  this  Bank,  it  may  be  pertinent  to 
chronicle  the  various  interests  affected  by  such  rate: 

The  Discount  Rate  of  the  Bank  of  England: 

I.  Establishes  the  minimum  rate  at  which  the  Bank  of 
England  will  discount  acceptable  paper ; 

II.  Fixes  the  rate  of  interest  allowed  by  London  joint- stock 
companies,  on  short  deposits,  since  this  rate  is  one  and  one- 
half  per  cent,  under  the  Bank  of  England  rate ; 

III.  Determines  the  rate  of  interest  allowed  by  London 
bankers  on  cash  balances  to  the  credit  of  foreign  correspondents, 
keeping  active  accounts  with  them,  in  so  much  that  this  rate 
is  usually  one -half  to  one  per  cent,  below  the  Bank  rate; 

IV.  Serves  also  to  fix  the  rate  of  interest  charged  on  cash 
overdrafts,  on  running  accounts,  as  debit  balances  are  generally 
subject  to  the  Bank  rate,  or  one -half  to  one  per  cent,  above, 
according  to  agreement; 

V.  Establishes  the  open  market  discount  rate  in  Great 
Britain,  at  which,  private  bankers,  London  joint- stock  compa- 
nies, and  discount  houses,  will  discount  paper  for  local  or 
foreign  account,  the  rate  ordinarily  being  from  one -quarter  to 
one -half  per  cent,  below  the  Bank  rate; 

VI.  Governs  also  the  "Retirement  Rate  of  Discount"  on 
documentary  payment  bills,  which  is  the  rate  of  interest  rebated 


ii8  International  Exchange. 

to  the  drawee,  or  acceptor,  of  a  documentary  payment  bill  for 
the  time  from  the  date  of  retirement  or  prepayment,  to  the  date 
of  maturity  of  the  bill,  this  rate  being  one -half  per  cent,  above 
the  rate  cf  interest  allov/ed  by  London  joint -stock  companies 
for  short  time  deposits,  which  rate  is  based  on  the  Bank  rate 
as  above; 

VII.  Affects  the  value  of  all  international  bills  of  exchange, 
as  an  advance  in  the  Bank  rate  either  advances  the  rate  of 
exchange  for  a  demand,  Sterling  draft,  in  a  foreign  country,  or 
depreciates  the  worth  of  a  long  time  Sterling  bill,  as  the  interest 
rate  for  credit  balances  and  the  discount  rate  for  long  time  paper 
are  indirectly  dependent  upon  the  Bank  rate ; 

VIII.  Has  the  power  of  protecting  the  gold  reserve  held  by 
the  Bank  of  England,  and  of  checking  any  protracted  move- 
ments of  gold  importations  by  foreign  nations,  insomuch  as  an 
advance  in  the  Bank  rate  adjusts  the  rates  of  foreign  exchange 
to  a  point  where  operations  of  this  nature  become  unprofitable; 

IX.  Invites  and  attracts  the  deposits  of  foreign  banks  with 
London  correspondents,  as  an  advance  in  the  Bank  rate,  to  a 
figure  in  excess  of  the  earning  capacity  at  home,  induces  conti- 
nental money  lenders  to  seek  the  London  market  for  investment 
of  their  funds ; 

X.  Indirectly,  has  a  tendency  to  depress  or  advance  the 
values  of  stocks  listed  on  the  New  York  Stock  Exchange — an 
advance  in  the  Bank  rate  causing  a  decline  in  stock  values, 
and  a  reduction  in  the  Bank  rate  usually  having  the  opposite 
effect,  because  the  values  of  stocks  are  largely  dependent  upon 
the  monetary  conditions  obtaining  in  New  York,  and  as  New 
York  bankers  in  periods  of  stringency,  nowadays,  resort  to 
relieve  the  situation  by  issuing  Finance  Bills  drawn  upon 
English  bankers,  the  Bank  of  England  rate,  indirectly,  either 
facilitates  or  precludes  their  course  of  action  as  explained  in 
Chapter  VI,  devoted  to  Finance  Bills. 


Difficulty  of  Forecasting  Bank  Rate.      119 

There  are  many  other  interests,  both  of  a  commercial  and 
financial  nature,  of  minor  importance,  affected  by  the  Bank 
rate,  but  the  preceding  citations  of  the  influences  and  scope 
thereof  it  would  seem  are  quite  sufficient  to  show  why  so 
much  interest  is  manifested  in  the  weekly  action  of  the 
Directors  of  the  Bank  of  England  with  respect  to  the  Bank's 
minimum  rate  of  discount,  and  commonly  called  the  "Bank 
of  England  rate." 

It  quite  frequently  happens  that  discount  rates  in  the  open 
money  market  are  quoted  considerably  lower  than  the  Bank 
of  England  rate,  caused  by  a  sudden  plethora  of  money,  and 
the  Bank  of  England  corrects  that  condition  by  borrowing 
itself,  thereby  absorbing  the  surplus  funds  seeking  investment, 
and  restoring  the  open  discount  rate  to  the  normal  difference 
between  it  and  the  Bank  rate,  or  if  the  rates  for  cheaper 
money  are  justified  by  the  prevailing  conditions,  the  Directors 
reduce  the  Bank's  rate  at  their  next  meeting.  In  this  manner, 
the  Bank  acts  as  the  guide  of  the  money  market  rate,  and  its 
opinions  are  so  much  respected  as  to  be  emulated  by  conti- 
nental banks.  If,  therefore,  the  open  market  rate  of  discount 
declines  to  a  point  in  excess  of  one-half  per  cent,  under  the 
Bank  rate,  and  is  permitted  to  remain  there  for  any  length  of 
time,  it  generally  forecasts  a  reduction  in  the  Bank  rate. 

A  probable  prospective  advance  in  the  Bank  rate  is  usually 
foreshadowed  by  an  advance  in  the  open  market  discount 
rate  to  a  figure  equivalent  to,  or  in  excess  of,  the  Bank  rate. 
It  is,  however,  very  difficult  to  accurately  foretell,  the  action 
of  the  Directors  with  regard  to  the  Bank  rate,  since  the  money 
market  is  very  sensitive,  and  conditions  frequently  change 
over  night. 

Explanation  has  preceded  of  the  meaning  of  the  terms — 
private  or  open  discount  rate,  retirement  rate  of  discount,  and 
the  Bank  of  England  rate,  and  furthermore  what  particular 


120        International  Exchange. 

rate  of  discount  applies  to  the  different  types  of  documentary 
bills  of  exchange — in  order  to  clearly  understand  (with  the 
aid  of  the  terms  upon  which  the  London  Account  is  conducted 
and  the  rates  of  discount  assumed)  the  illustrations  covering 
the  operations  to  ascertain  the  value  of  the  various  kinds  of 
foreign  bills  of  exchange  that  follow: 

In  computing  the  prices  that  can  be  paid  for  Sterling 
exchange,  £ioo  of  the  value  of  $4.85  per  pound,  Sterling,  or 
say  $485,  will  be  used  as  a  basis,  and  the  interest  will  be 
calculated  on  a  scale  of  365  days  to  the  year,  and  three  days 
of  grace  on  time  bills. 

This  is  the  customary  practice  among  bankers  and  answers 
all  practical  purposes,  in  fact,  this  method  of  calculation  has 
been  so  universally  adopted  that  printed  interest  tables  have 
been  compiled  on  that  basis  and  are  in  general  use. 

The  English  stamp  duty  on  checks  and  three  days'  sight 
drafts  is  one  pence  for  each  appoint,  irrespective  of  amount, 
and  all  other  time  drafts  are  subject  to  a  stamp  duty  of  one 
shilling  per  ;^ioo  or  fraction  thereof,  or  say,  one -twentieth 
per  cent. 

To  proceed  to  determine  what  prices  can  be  paid  by  the 
American  bank,  allowing  a  profit  of  one -fourth  of  a  cent  per 
pound,  about  one -twentieth  per  cent.,  on  each  bill  for  the 
following  foreign  bills  of  exchange,  and  assumed  to  have  been 
tendered  to  it  for  sale; 


Ninety -Day  Sight  Draft.  121 


What  price  can  be  paid  for  a  ninety -day  sight  draft  on  prime 
London  bank,  documents  against  acceptance : 

Example  I. 

Basis:  ;^ioo  =  $485. 

Commission  charged  to  account  of  American 

bank  by  London  banker,         _         _         _        1/40^,         .12 

Discount  to  be  deducted  by  London  banker, 
93  days*  interest  at  3j4%  per  annum  on 
;^ioo,  $485, 4.32 

English  stamp  duty,  .         .         -         .        1/20%,         .24 

Margin  of  profit  for  American  bank,  ^  cent 

per  ;^,  or, 1/20%,         .24 

Total  charges,       -         .         .         _  $4.92 

Now,  if  the  total  charges  on  a  draft  for  ;^ioo  amount  to 
$4.92,  the  charges  on  one  pound  will  amount  to  i/ioo  part  of 
$4.92,  or  .0492  per  pound.  Sterling. 

The  foregoing  operation  shows  that  a  ninety -day  bill  is 
worth  4  92/100  cents  per  pound.  Sterling,  less  than  a  demand 
bill,  consequently,  if  the  American  banker  can  sell  his  demand 
draft  at  $4.88  on  the  day  of  the  purchase  of  the  ninety- day 
bill,  he  must  deduct  .0492  from  this  rate,  giving  the  rate  of 
$4.8308,  or,  approximately,  $4.83  1/16,  the  price  he  could 
offer  to  pay  for  the  ninety-day  bill,  allowing  a  profit  of  one- 
quarter  cent  per  pound,  Sterling,  on  the  transaction. 


122        International  Exchange. 


What  price  can  be  paid  for  a  sixty -day  sight  draft  on  prime 
mercantile  house,  documents  against  acceptance: 

Example  II. 
Basis,  ^ioo  =  $4.85. 

Commission  of  London  banker,         -         -        i/4o7o.     -12 
Discount  to  be  deducted  by  London  banker, 

63  days'  interest  at  3^%  P^^  annum,  3.03 

English  stamp  duty, i/2o7o,     -24 

Margin  of  profit,  ){  cent  per  pound,  -        1/20° I ^,     .24 


Total  charges  per  100  pounds,  $3  63 

Deduct  from  the  price  at  which  demand  draft 

can  be  sold,  viz,  per  pound,        -         -         -  4.88 

Less  charges  as  above  on  one  pound,  .0363,  -0363 

per  pound,  .         .         -  $4.8437 

or,  say,  $4.84^^,  the  price  to  be  paid  for  a  sixty-day  sight 
draft  on  London  merchants,  documents  against  acceptance. 

The  calculation  is  exactly  the  same  in  arriving  at  the  value 
of  a  sixty -day  draft  on  a  merchant,  documents  deliverable 
on  acceptance,  as  to  ascertain  the  worth  of  a  ninety-day  draft 
on  a  banker,  with  the  exception  that  in  the  former  estimate 
deduction  is  made  of  sixty-three  days'  interest  at  three  and 
five -eighths  per  cent,  per  annum,  as  against  ninety-three  days' 
interest  at  three  and  one -half  per  cent,  per  annum  in  the 
latter  case,  owing  to  the  difference  in  the  tenor  of  the  draft 
and  the  difference  in  the  discount  rate  in  London  between  an 
acceptance  by  a  merchant  and  that  of  a  banker. 


Drafts  —  Ten  and  Sixty  Days.  123 

What  bid  shall  be  made  for  a  ten -day  sight  draft  on  a  prime 
merchant,  documents  deliverable  against  acceptance : 

Example  III. 

Basis,  ;^ 1 00  =  $48 5. 

Discount  to   be   deducted   by  the    London 

banker,  13  days  at  3^7^  per  annum,     -  .66 

Commission  of  London  banker,    -         -  1/40%,         .12 

English  stamp  duty,         -         -         _         .     i]20°l^,         ,24 
Margin  of  profit,  i^  cent  per  pound,     -         1/20%.         .24 

Total  charges  per  ;^ioo,        -  $1.26 

per  £,  -  .0126 

Price  American  banker  can  realize  for   his 

London  check,      -----  $4.88 
Less  charges,  as  above,          _         .         .  ,0126 

Price  he  can  pay,  -         -  $4.86^ 

What  price  can  be  paid  for  a  sixty -day  draft  drawn  on  a 
merchant,  documents  deliverable  against  payment,  covering  a 
shipment  of  perishable  goods : 

Example  IV. 
Basis,  .i^ioo=$485. 
Retirement  rate  of  discount  at  which  draft 

may  be  retired  at  option  of  drawee,  under, 

rebate,  6^  days'  interest  at  3^, 
Commission  of  London  banker, 
English  stamp  duty,     -         -         -         - 
Margin  of  profit,  %  cent  per  pound, 

Total  charges  per  £100,  - 
per  £     - 

deduct  from  $4.88,  the  price  demand  draft  of  American 
banker  can  be  sold,  to  give  him  a  rate  of  $4.84  J^  that  he  can 
afford  to  pay. 


$2.52 

■/40%, 

.12 

■/20%, 

.24 

■/^o%, 

.24 

$3-12 

.0312 

124  International  Exchange. 

Bills  Secured  by  Perishable  Goods. 

In  connection  with  documentary  payment  bills,  mention 
may  be  made  of  their  division  into  two  classes,  to- wit: 

Class  A: 

These  bills  are  drawn  against  what  is  termed  perishable 
merchandise,  including  fresh  meats,  lard,  oleo,  stearine,  tallow, 
etc.,  and  are  therefore  usually  paid  by  the  drawee,  under 
rebate  at  retirement  rate  of  discount,  upon  arrival  of  the 
merchandise,  usually  within  a  few  days  after  the  acceptance 
of  the  draft,  as  freight  of  this  nature  is  always  carried  by  fast 
steamers,  to  insure  the  delivery  with  the  least  possible  delay. 

This  class  of  bills  can  consequently  be  purchased  on  prac- 
tically the  same  basis  as  if  drawn  on  prime  merchants  with 
documents  to  be  surrendered  on  acceptance,  in  fact,  such  bills 
command  a  higher  price  than  discountable  acceptance  bills, 
for  the  reason  that  acceptance  bills  are  subject  to  the  private 
open  market  discount  rate,  ordinarily  higher  than  the  retire- 
ment rate  of  discount  applying  to  payment  bills. 

It  does  not  matter  to  the  purchaser  of  bills  whether  the 
bills  are  bought  with  documents  on  acceptance,  provided  the 
acceptor  is  financially  strong,  or  documentary  payment  bills 
that  are  promptly  retired  by  drawee,  since  documentary 
acceptance  bills  are  credited  to  the  American  banker's 
London  account  after  acceptance,  under  discount  deducted 
by  his  London  banker,  and  documentary  payment  bills  (of 
this  class)  are  credited,  also,  practically  upon  acceptance, 
under  rebate  allowed  drawee,  at  the  retirement  rate. 


Basis  of  Purchase.  125 

Both  documentary  acceptance  and  documentary  payment 
bills  of  this  type  may,  therefore,  be  classified  in  the  same 
category  and  be  treated  as  cash  remittances,  and  may  be 
checked  against,  by  the  remitting  banker,  at  his  pleasure, 
without  fear  of  creating  an  overdraft  of  his  London  cash 
account. 

To  pass  on  to  the  consideration  of  the  other  class  of  docu- 
mentary payment  bills,  and  their  difference  from  those  secured 
by  perishable  goods : 

Bills  Secured  by  Non- Perishable  Goods: 
Class  B. 
These  bills  of  exchange  are  drawn  against  shipments  of 
non-perishable  merchandise,  being  such  articles  as  flour, 
cereals,  canned  meats,  etc.  Because  there  is  no  danger  of 
deterioration  in  quality  during  transit,  freight  of  this  kind  is 
generally  consigned  to  slow  steamers  and  is,  in  almost  all 
instances,  warehoused  upon  arrival  at  its  destination. 

These  goods  are  seldom  withdrawn  from  storage,  until 
payment  of  the  drafts,  at  maturity,  unless  there  is  urgent 
demand  upon  the  drawee  of  the  appertaining  drafts,  by  his 
customers  to  whom  the  goods  may  have  been  sold,  for  prompt 
delivery  of  same,  or,  unless  his  stock  on  hand,  of  similar 
goods  has  been  exhausted,  so  as  to  require  immediate  replen- 
ishment. 

From  the  foregoing  established  facts,  the  safe  calculation 
for  the  purchase  of  drafts  secured  by  non-perishable  merchan- 
dise is  upon  the  basis  of  payment  at  maturity;  and  is  equiva- 


126        International  Exchange. 

lent  to  investing  the  money  for  sixty  days,  if  drafts  are  drawn 
at  sixty  days'  sight,  as  they  usually  are,  at  the  retirement  rate 
of  discount  obtaining  on  the  day  of  the  purchase  of  the  bills. 

Few  Foreign  Departments  have  a  sufficient  amount  of 
money  at  command  to  permit  the  investment  of  funds  in  this 
way;  these  Departments  are  generally  given  a  stipulated 
amount  of  working  capital,  and  as  the  margin  of  profit  is 
very  small,  their  managers  are  compelled  to  confine  them- 
selves to  the  purchase  of  bills  readily  discountable,  so  that  its 
working  capital  can  be  constantly  turning  over,  and  thus 
operate  on  the  same  lines  as  the  merchant  conducting  his 
business  on  the  basis  of  "quick  sales  and  small  profits." 

Fortunately,  however,  a  plan  has  been  devised  whereby 
these  bills  can  be  bought  upon  a  discount  basis,  enabling  the 
American  banker  to  pay  for  them  within  about  five -eighths 
cent  per  pound  as  much  as  for  bills  that  can  be  discounted 
by  bankers. 

The  operation  is  this:  although,  not  discountable,  as  before 
said,  documentary  payment  bills  are,  however,  accepted  as 
collateral  by  the  London  banker,  and  the  remitting  banker  is 
privileged  to  draw  against  such  bills  his  own  long  time  drafts 
easily  convertible  into  cash  by  sale  in  the  open  market,  or 
by  remitting  such  drafts  to  his  discount  house  in  London 
for  discount. 

There  are  many  bankers  opposed  to  offering  their  own 
time  bills  for  sale  because  such  a  practice,  if  indulged  in 
freely,  may  present  certain  obvious  objections. 


NoN  -  Perishable  Collateral.  127 

What  price  can  be  paid  for  Class  B  bills,  upon  the  basis  of 
the  American  banker  issuing^  his  own  sixty- day  sight  bills, 
there  against,  and  remitting  same  to  London  for  discount. 

To  determine  the  value  of  a  sixty -day  sight  draft,  drawn 
upon  a  merchant,  documents  on  payment,  covering  non-perish- 
able goods ; 

Example  V. 

Basis:  ;i^ioo  =  $485. 

Discount  to  be  deducted  by  the  discount  house  on  sixty- 
day  draft  of  American  banker  on  its  bank,  issued  against  col- 
lateral, as  above : 

Interest,  6^  days'  at  3/^%  per  annum,     -         -         $2.91 

Commission  of  London  banker,         -  1/40%,         .12 

English  stamp  duty  on  Class  B  bill,      -     1/20%,         -24 

English  stamp  duty  on  American  banker's 

sixty -day  bill,  -         .         _         .     1/20%,         .24 

Margin  of  profit,  }(  cent  per  pound,  i/2o7o,         -^4 

Total  charges,  per  ;^ioo,     -         -  $3-75 

or,  per  pound,  .03^. 

Price  American  banker  can  sell  his  demand  draft  for,    4.88 
Less  charges  as  above,    -         -         -         -         -         -03^ 

Price  he  can  pay, $4.84^ 

By  reverting  to  Example  IV,  covering  the  value  of  a 
documentary  payment  bill  of  Class  A,  it  will  be  found  that 
the  value  of  same  was  $4.84%  per  pound,  while  from  the 
operation  above  the  value  of  a  bill  in  Class  B  is  $4.84)^,  or 
^  cent  per  pound  less. 

The  difference  in  value  is,  it  will  be  seen,  due  to  the  extra 
English  stamp  duty  on  the  bill  of  the  American  banker,  .24 
and  the  difference  of  interest  for  60  days  between 

the  private  discount  rate  of  3>^%,      -         -     $2.91 

and  the  retirement  rate  of  discount,  3%,  2.52      .39 


128        International  Exchange. 

Of  course  there  will  be  times  when  interest  rates  in  this 
Country  are  very  low,  owing  to  an  abundance  of  money,  and 
local  banks  will  be  very  glad  to  avail  themselves  of  an  oppor- 
tunity to  make  sixty- day  time  loans  at  three  per  cent.,  or 
whatever  the  retirement  rate  may  be,  rather  than  permit 
their  surplus  funds  to  remain  idle,  or  earning  a  lower  rate  of 
interest;  especially  so,  in  view  of  the  fact,  that  these  loans,  if 
made  by  the  purchase  of  Class  B  bills,  are  practically  demand 
loans,  inasmuch  as  payment  can  be  called  at  a  moment's 
notice,  by  the  issuance  merely  by  such  banks  of  their  own 
time  paper  against  the  hypothecation  of  Class  B  bills  as 
collateral,  as  previously  described. 

So  that,  while  ordinarily,  Class  B  bills  should  be  purchased 
at  approximately  five-eighths  cent  per  pound,  Sterling,  under 
the  rate  for  Class  A  bills,  conditions  and  circumstances  may 
prevail,  which  might  make  the  bills  secured  by  the  non-per- 
ishable goods  attractive  at  a  price  on  a  parity  with  the  bills 
secured  by  perishable  goods,  and  then  no  discrimination 
between  them  should  be  made. 

All  the  calculations  illustrated  in  this  Chapter,  with  respect 
to  the  value  of  foreign  bills  of  exchange,  are  based  on  bills 
drawn  upon  London;  and  bills  drawn  upon  cities  in  England, 
outside  of  London,  are  subject  to  a  collection  charge  of  about 
one-eighth  cent  per  pound,  Sterling,  and  the  charge  for  col- 
lecting bills  drawn  upon  cities  in  Scotland  and  Ireland  is 
about  one-quarter  cent  per  pound.  Sterling.  These  exchange 
charges  are,  however,  not  fixed,  and  the  banker  purchasing 
bills  of  this  nature  should  base  his  calculations  upon  the 
terms  and  facilities  offered  him  by  his  London  correspond- 
ents for  handling  such  business. 

If,  however,  these  bills  drawn  on  cities  outside  of  London 
have  the  phrase  Payable  in  London,  or  Payable  with  London 
Exchange,  incorporated  in  the  body  of  the  bills,  they  are 
exempt  from  all  extra  exchange  charges  because  the  drawees 
are  required  to  pay  the  bills  with  exchange  on  London. 


Margin  of  Profit,  Nominal.  129 

In  computing  the  purchase  price  for  the  foregoing  various 
bills  of  exchange,  in  all  cases,  a  margin  has  been  allowed  of 
one-quarter  cent  per  pound,  Sterling,  as  profit,  representing 
only  a  purely  nominal  and  not  an  actual  profit;  and  was 
fixed  to  establish  the  relative  value  of  the  different  kinds  of 
foreign  bills  of  exchange  were  all  purchased  upon  the  same 
percentage  of  marginal  profit. 

For  obvious  reasons,  the  percentage  of  profit  on  a  bill 
issued  by  a  small  exporter  and  rarely  in  the  market  would 
be  much  larger  than  on  a  bill  drawn  by  a  large  concern  and 
in  the  market  every  day,  and  it  is  proper  that  it  should  be 
so,  because  the  aggregate  profit  on  bills  purchased  from 
a  large  concern  would  be  greater  than  the  profit  derived 
through  the  purchase  of  bills  from  a  small  concern,  owing  to 
the  much  larger  amount  of  business  acquired  from  the  heavy 
exporter. 

A  merchant,  buying  goods  in  large  quantities  from  day  to 
day,  can  always  buy  on  more  favorable  terms  and  at  a  better 
price  than  the  merchant  buying  small  quantities  occasionally; 
for  the  same  reason,  an  exporter,  making  daily  shipments  in 
large  quantities,  can  demand  a  higher  price  for  his  bills 
of  exchange  than  the  seller  who  only  ships  occasionally,  in 
small  lots. 

It  will,  therefore,  be  readily  understood  that  it  is  absolutely 
impossible  to  fix  a  margin  of  profit  applicable  to  all  bills  of 
exchange,  as  this  item  must  be  determined  by  the  banker  in 
each  transaction,  according  to  the  various  factors  and  condi- 
tions governing  individual  cases. 


Chapter  XVIII. 

THE    GERMAN    ACCOUNT. 

TH  E  German  Account  is  of  great  magnitude  and  it  follows 
that  of  the  English  Account  in  importance  and  volume 
of  business  with  the  American  banks,  and  in  many  respects 
is  conducted  on  similar  lines  of  operation. 

A  business  relation  established  by  an  American  banker 
with  any  one  of  the  prominent  German  banking  institutions, 
practically  secures  for  him  a  correspondent  in  every  city  of 
importance  in  the  German  Empire,  by  reason  of  the  fact  that 
these  German  banks  have  branch  offices  or  agencies  called 
"Filiales"  in  all  of  the  leading  cities  of  the  Empire  that  work 
as  a  unit  with  the  parent  house  or  head  office.  This  system 
of  branch  banking  has  many  commendable  features,  and  the 
recognition  and  appreciation  thereof  undoubtedly  explains 
the  large  number  of  foreign  banking  accounts  conducted  on 
the  books  of  the  principal  banks  in  Germany. 

The  account  of  an  American  banker  opened  with  one  of 
the  leading  German  banks  with  its  central  office  in  Berlin 
would  be  tantamount  to  his  entering  upon  business  relations 
with  all  of  its  branch  offices  throughout  Germany,  as  the 
American  banker  would  be  authorized  by  the  Berlin  office  to 
remit  bills  of  exchange  for  credit,  and  issue  his  checks,  upon 
any  of  its  branches  free  of  commission  for  account  of  the 
Berlin  office,  so  that,  although  the  American  banker  would 
be  in  correspondence  with  all  its  agencies,  his  books  of  account 
would  be  confined  to  the  Berlin  account.  This  system  of 
branch  banking  simplifies  clerical  work  and  has  in  its  favor 
the  essential  feature  of  concentration  of  funds. 

In  former  years,  the  German  banks,  conforming  to  English 
custom,  exacted  a  commission  of  usually  one-half  per  mille 
for  conducting  the  accounts  of  foreign  bankers.     The  spirit 

130 


German  Bankers'  Sources  of  Income.        131 

of  competition,  so  characteristic  of  the  German  people,  in 
conjunction  with  their  keen  desire  to  enlarge  their  business 
relations  on  the  American  continent,  was  so  pronounced,  that, 
step  by  step,  concessions  were  granted  to  invite  business,  and 
finally  resulted  in  their  present  policy  to  accept  the  accounts 
of  foreign  bankers,  free  of  commission. 

In  justice,  however,  to  the  English  financiers,  who  have  not 
yet  adopted  the  method  of  the  German  bankers  in  this 
respect,  it  should  be  said  that  the  usages  of  the  Fatherland  as 
pertaining  to  banking  in  Germany,  afford  the  German  banker 
many  opportunities  to  secure  a  remuneration  for  his  services, 
that  the  English  banker  must  forego;  so  it  is  reasonable  to 
believe  that  the  compensation  of  the  German  banking-houses 
is  no  less  than  that  charged  by  the  English  banking  institu- 
tions. 

The  interest  account  is  a  source  from  which  the  German 
banker's  profit  is  derived;  to  explain: 

All  checks  issued  by  the  American  bank  upon  its  German 
correspondent  are  immediately  charged  to  its  account  upon 
the  receipt  of  tlie  appertaining  advice,  instead  of  upon 
payment  of  check  as  in  London. 

Since  it  frequently  happens  that  checks  are  not  promptly 
presented  for  payment  but  remain  in  circulation,  the  interest 
on  the  amount  of  checks  outstanding  is  a  profit  to  the 
German  banker.  The  interest  or  discount,  deducted  from  all 
time  bills  of  exchange  remitted  for  credit,  is  another  source 
of  great  profit  to  the  German  bank. 

Cash  items  and  remittances  are  credited  to  the  account 
"value" — by  value  is  meant  the  date  from  which  interest  is 
credited  or  debited — the  day  following  the  date  of  actual 
payment,  instead  of  "value"  the  date  of  payment  as  in 
London. 


132        International  Exchange. 

"Arbitrage  Transactions,"  fully  explained  in  Chapter 
XXVI,  devoted  to  this  branch  of  foreign  exchange  banking, 
afford  another  means  of  revenue  for  the  German,  banking- 
house,  and  its  other  resources  for  gains  will  be  touched  upon 
later;  thus  it  will  be  seen,  that,  although  no  commission  is 
charged,  nevertheless,  the  German  banker  receives  compen- 
sation for  his  services. 

To  proceed  to  illustrate  the  practical  operation  of  the 
German  Account  and  in  so  doing  following  the  same  line  of 
procedure  as  in  the  English  Account,  and  further  to  ascertain 
what  prices  the  American  banker  can  afford  to  pay  for  the 
various  kinds  of  foreign  bills  of  exchange  drawn  upon 
Germany,  and  assuming  that  the  American  banker  has  estab- 
lished a  connection  with  one  of  the  preeminent  German  banks 
previously  referred  to,  on  these  terms  and  conditions: 

Account  current  conducted  Free  of  charge; 

Interest  allowed  on  American      (According    to    money 
cash  credit  balances,  1       market,  generally  2// 

V  under  bank  rate; 

Interest  charged  on  American      (-According    to    money 
cash  overdrafts,  1       market,  generally  i  % 

V  above  bank  rate; 

Postage  and  cost  of  cablegrams  to  be  debited  to  the 
account. 

To  establish  a  fundamental  basis  of  calculation,  assume 
further  that  the  discount  rates  in  Germany,  and  the  price  that 
the  American  banker  can  realize  in  New  York  City  for  his 
checks  are  as  hereinbelow  stated,  and  include  also  a  compli- 
ance with  the  German  laws  relating  to  bill -stamp  duties,  as 
follows: 


Discount  Rates  in  Germany.  133 

Checks   drawn    against   cash") 

funds  in  the   hands  of  the  I  Exempt  from  stamp  duty; 
drawee  for  account  of  drawer,  J 

Letters  of  Delegation  drawn  at  )  -r-  ^  r  i.  j  ^ 

•  u*.       4.U        J       '    •   u^         r  Exempt  from  stamp  duty; 
sight  or  three  days  sight,       j  ^  r        /  > 

Three-day  sight,  and  other  time  \      j/o/ 
drafts,  approximately,  j       ^^  '°° ' 

Imperial  German    Reichsbank  )      0/ . 
discount  rate  per  annum,         j    ^^°  ' 

Private  or  open  market  rate  of  \    31/°/  . 
discount,  per  annum,  j    -j/^/o' 

Price  American  banker  can  real- 1  p,c  V  •-     t- 
ize  for  checks  on  Germany,    j  y-'/-  ■" 

The  quotation  of  95.5  cents  is  the  price  that  the  American 
bank  can  obtain  for  every  four  marks — the  customary  man- 
ner to  quote  exchange  rates  for  marks. 

What  price  shall  be  paid  for  a  ninety-day  sight  draft  on 
German  bankers,  or  prime  merchants,  documents  against 
acceptance : 

Example  I. 

Basis  of  calculation,  M.  400  at  94  cents  =  $94.  This  is  in 
conformity  with  conventional  custom,  tables  having  been 
compiled  on  this  basis. 

Discount  to  be  deducted  by  the  German 

correspondent,  90  days'  interest  at 

SXVo'  private  discount  rate,  -        -  .y^ 

German  bill  stamp,  _         _         _         /^%o»  -^5 

Margin  of  profit  for  American  bank,    -    ^7oo'  -^S 

Total  charges,        -        -        -        -  .8y 

or,  say,  ^7ol  the  rate  for  marks  being  so  nearly  one  hundred 
cents  that  for  all  practical  purposes,  bankers  always  figure 
the  charges  in  marks,  as  per  one  hundred  or  per  cent. 


134        International  Exchange. 

If  the  American  bank  can  sell  its  mark  check  for  $95.50 

and  the  charges  on  a  ninety-day  draft  are  as  above,  -       .87 

he  can  pay  the  difference,  or  say,  -         -         -         -  94.63 
for  a  ninety-day  sight  draft,  equal  to  945^. 

The  private  discount  rate,  2)%°lo>  ^^^  figured  on  the  above 
bill.  Documentary  bills,  with  documents  deliverable  on 
acceptance  of  the  drawees,  are  discounted,  upon  receipt  by 
the  German  banker,  at  the  open  market  or  private  discount 
rate,  conforming  to  the  practice  of  the  English  banker. 

As  the  rate  fluctuates  from  day  to  day  according  to  the 
monetary  conditions,  it  would  be  advisable  for  the  American 
banker  to  make  the  same  arrangements  with  his  German 
banker  that  were  entered  into  with  his  London  correspondent, 
to-wit:  to  have  him  wire  the  American  bank  every  day  the 
private  rate  of  discount  at  which  the  German  banker  will 
contract  to  discount  bills  from  his  American  correspondent 
"  to  arrive,"  so  as  to  enable  the  American  banker  to  make 
his  daily  purchases  on  this  basis,  and  secure  his  profit  by 
accepting  the  discount  rate  for  the  aggregate  amount  of  his 
daily  transactions. 

If  the  American  banking  -  house  does  not  pursue  this 
course,  the  manager  of  its  Foreign  Department  may  buy  bills 
on  the  basis  of  three  and  one-quarter  per  cent,  discount,  that, 
owing  to  an  advance  of  the  discount  rate  during  transit,  may 
be  discounted  at  three  and  three-quarters  per  cent,  upon 
arrival,  and  instead  of  a  profit,  the  Foreign  Department  will 
have  made  a  loss  on  its  business. 


German  Documentary  Payment  Bills.         135 

What  price  to  pay  for  a  sixty-day  sight  draft  on  a  German 
merchant,  documents  against  payment: 

Example  II. 
Basis  of  calculation,  M.  400  at  94  cents,  =  $94. 
Discount  to  be  deducted  by  German  banker, 

60  days'  interest  at,  Reichsbank  discount  rate,  4%,  .63 

German  bill  stamp, 1/°/  '  q- 

Margin  of  profit  for  American  bank,         -  1^7°°*         [qk 

Total  charges,  approximately,  ^%,  .         ^ 


From  the  price  for  mark  checks  of        -         -         .         $95.50 

deduct  the  charercs  of      -         -         . 

the  difference  is  the  price  for  a  sixty-day  sight 

documentary  payment  bill,  to  wit:  94^,  or   -         -     94.75 

Although  the  above  was  a  documentary  payment  bill,  the 
same  will  be  discounted  upon  receipt  by  the  German  banker, 
whereas  the  London  banker  does  not  discount  bills  of  this  type.' 
The  German  banker  discounts  payment  documentary  bills  at 
the  Reichsbank  discount  rate,  which  is  usually  one-quarter  to 
one  per  cent,  higher  than  the  open  market  or  private  rate; 
the  private  discount  rate  is  not  applied  by  the  German 
banker  on  such  bills. 

The  reason  for  so  doing  is  because  the  German  banker  can 
not  re-discount  the  bills  and  must  hold  them  in  his  portfolio 
until  maturity,  or  their  retirement  by  the  drawees  prior  to 
maturity,  who  then  are  allowed  rebate  for  the  unexpired  time 
to  maturity,  at  the  Reichsbank's  discount  rate. 

Documentary  payment  bills  on  Germany  are  usually  retired 
by  drawees  within  a  short  time  after  their  acceptance,  so  that 
the  banker,  in  reality,  makes  a  short  loan,  according  to  the 
period  of  time  that  the  bill  is  held  in  his  portfolio,  with  prime 
collateral  security,  represented  by  documents  attached  to 
draft,  at  the  Reichsbank  minimum  rate. 


136  International  Exchange. 

Were  the  above  bill  drawn  upon  bankers  or  upon  prime 
merchants  with  instructions  to  surrender  appertaining  docu- 
ments against  drawee's  acceptance,  it  would  have  been  dis- 
counted at  three  and  one -quarter  per  cent.,  the  private  rate, 
instead  of  four  per  cent.,  the  Reichsbank  rate,  the  other 
charges  would  have  been  the  same,  so  that  we  could  have 
paid  the  difference  between  the 

sixty  days'  interest  at        -        -         -        -        4%,  .63 

and  the  sixty  days*  interest  at        -         -         .     Z%%,        .51 

or  J^%,  that  is         -         - .12 

more  than  for  a  documentary  payment  bill,  and  worth  $94.^ 

What  price  shall  be  paid  for  a  thirty- day  sight  draft  on  a 
German  banker  or  prime  merchant,  documents  on  acceptance : 

Example  III. 
Basis  of  calculation,  M.400  at  94  cents=$94. 
Discount  to  be  charged  by  German  banker, 

30  days'  interest  at  private  rate, 
German  bill  stamp,      -        -        .         - 
Margin  of  profit  for  American  bank, 
Total  charges,  approximately, 

Since  the  mark  checks  sell  at   - 

and  deducting  the  above  charges  of 
The  difference  is  the  value  of  a  thirty-day  draft,  $95,125 

Were  the  above  a  documentary  payment  bill,  interest  at 
four  per  cent.,  the  Reichsbank  rate,  would  have  been  deducted, 
and  would  then  have  paid  correspondingly  less. 


l%% 

.26 

>^7oo 

.05 

%°L. 

,    .05 

^%, 

.36 

- 

$95.50 

y%%, 

.375 

Prices  Drafts  on  Germany.  137 

What  price  to  pay  for  a  ten -day  sight  draft  on  a  merchant 
in  Germany,  documents  on  payment: 

Example  IV. 
Basis  of  calculation,  M.  400  at  94  cents=$94. 
Discount  to  be  deducted  by  German  banker, 

10  days'  interest  at  Reichsbank  rate,  -     4%,  .09 

German  bill  stamp,         .         .         .         -  /^7oo>       '^5 

Margin  of  profit  for  American  bank,  -       /^Voo'       -^5 

Total  charges,       -----  .19 

Price  American  bank  can  realize  for  its  checks,      -    $95. 5Q 
Less  charges  as  above,  -         -         -         -         -      .19 

or,  95  5/16,  value  of  a  ten -day  sight  payment  bill,       9531 

What  is  the  value  of  a  three -day  sight  draft  on  a  German 
merchant,  documents  against  payment: 

Example  V. 
Basis  of  calculation,  M.  400  at  94  cents  =$94. 
Discount  to  be  deducted  by  German  banker, 

3  days'  interest  at  Reichsbank  rate,     -     4%,  .025 

German  bill  stamp,  _         -         .         .         K7oo»       -^5 

American  banker's  margin  of  profit,     -         -     5^7oo«       -^S 
Total  charges,       -         -        -        -        -         -.125 

Price  American  banker  can  sell  his  check  for,         -    $95.50 
Less  charges  as  above,      -         -        -        -         -  .125 


or,  95^,  price  he  can  pay  for  above  bill,       -         -       95-375 


138        International  Exchange. 

For  a  three -day  sight  Letter  of  Delegation  on  a  German 
merchant,  the  American  bank  could  afford  to  pay  one-half 
per  mille,  more,  than  for  a  three- day  sight  draft,  for  the 
reason  that  there  is  no  charge  for  German  bill  stamp  on 
Letters  of  Delegation,  thereby  increasing  their  value  one- 
half  per  mille. 

Of  course,  in  actual  business  operations,  the  rate  for 
fraction  of  values  for  marks,  are  accurately  expressed,  as, 
for  instance,  the  rate  ot 

94,72  would  be  expressed  as  94^  less  1/32%; 
94.78  would  be  expressed  as  94^  plus  1/32%; 
95.265  would  be  expressed  as  95^  plus  1/64%; 
95.235  would  be  expressed  as  95^  less  1/64%;  etc. 

In  the  preceding  examples,  the  writer  did  not,  however, 
carry  out  the  exact  fractions  in  this  manner,  as  it  was  the 
underlying  principle  employed,  applicable  to  determine  the 
value  of  bills,  that  he  desired  to  impress  more  upon  the  mind 
than  the  exact  figures,  such  exact  figuring  being  a  simple 
mathematical  problem. 

The  description  of  the  diversified  types  of  bills  of  exchange 
have  not  been  given  extended  treatment  since  all  these  details 
were  fully  outlined  in  the  preceding  Chapter  XVII,  devoted 
to  the  English  Account.  Since  the  foreign  documentary  bills 
of  exchange  on  the  different  countries  are  exactly  alike,  and 
are  treated  in  the  same  manner,  what  applies  to  documentary 
bills  on  England,  is  also  true  with  respect  to  bills  on  the 
other  foreign  countries,  with  the  one  exception,  that,  while 
documentary  payment  bills  can  not  be  forwarded  to  the 
London  correspondent  for  credit  to  the  account  of  the 
American  bank,  under  discount,  continental  bankers  will 
place  these  bills  to  his  credit,  under  discount. 


"FiLiALEs"  OR  Branch  Banks.         *      139 

If  the  foreign  bills  of  exchange,  forwarded  for  collection 
and  credit  are  drawn  at  sight,  or  three  days'  sight,  in  Germany 
where  the  Berlin  banker  has  "Filiales"  or  branches,  such  bills 
may  be  sent  direct  to  the  branch  offices,  under  simultaneous 
advice  to  the  Berlin  correspondent  of  the  American  bank, 
and  the  Berlin  bank  will  credit  such  bills  to  the  account  of 
the  American  bank  free  of  commission. 

Bills  at  sight,  or  three  days'  sight,  drawn  upon  the  smaller 
German  cities  where  no  branch  offices  are  located,  should  be 
sent  to  the  Berlin  correspondent,  unless  he  has  authorized  the 
American  bank  to  send  such  paper  direct  to  his  corres- 
pondents for  his  account,  but  in  all  cases,  the  bills  will  be 
subject  to  a  collection  charge  of  from  one-half  to  one  per 
mille,  or  more,  according  to  agreement,  and  should  be  pur- 
chased by  the  American  bank  on  this  basis. 

Bills  drawn  at  thirty,  sixty,  and  ninety  days'  sight  with 
documents  attached,  to  be  surrendered  upon  payment,  should 
be  treated  in  like  manner.  If,  however,  the  bills  are  issued 
at  thirty,  sixty,  or  ninety  days'  sight,  with  documents 
attached,  deliverable  against  the  acceptance  of  drawees,  then 
the  "First"  or  Original  of  Exchange  should  be  forwarded 
direct,  in  like  manner,  but,  instead  of  for  credit,  for  the 
account  of  the  Berlin  correspondent,  instructing  the  banker 
to  whom  the  bills  are  sent  to  obtain  acceptance  of  respective 
<' Firsts,"  and  then  forward  the  bills  to  the  Berlin  corres- 
pondent for  account  of  the  American  bank. 

It  is  not  customary  to  endorse  these  "Firsts  of  Exchange" 
but  endorsement  by  the  A..merican  banker  may  be  made  to 
the  order  of  his  Berlin  correspondent  to  whom  duly  endorsed 
"Seconds  of  Exchange"  are  remitted  by  the  American  bank 
for  discount  and  credit,  by  following  mail. 

The  reason  "Firsts  of  Exchange"  are  sent  direct  for  accept- 
ance to  bankers  domiciled  in  cities,  where  drawees  of  respect- 


140  International  Exchange. 

ive  bills  are  located,  is  to  fix  the  date  of  maturity  by  accept* 
ance  of  the  bills  at  the  earliest  possible  moment  to  save 
interest. 

These  bills  are,  as  before  stated,  discounted  at  the  open 
or  private  rate  of  discount,  and  instead  of  charging  a  com- 
mission for  collecting  these  bills,  as  in  the  case  of  sight,  or 
three- day  sight  drafts,  the  Berlin  correspondent  does  the 
following: 

If  the  bill  of  exchange  is  drawn  for  an  amount  of  M. 
10,000,  or  in  excess  thereof,  the  last  five  days  of  the  bill  are 
discounted  at  Reichsbank  rate,  instead  of  at  private  discount 
rate;  and  if  drawn  for  an  amount  of  less  than  M.  10,000, 
the  last  ten  days  of  the  life  of  the  bill  are  discounted  at  the 
Reichsbank  rate,  instead  of  at  the  private  discount  rate. 

In  other  words,  a  ninety-day  sight  draft  of  M.  10,000,  or 
above,  would  be  discounted  as  follows:  eighty- five  days  at 
private  rate  and  five  days  at  Reichsbank  rate,  etc.  Since  the 
private  rate  of  discount  is  always  less  than  the  Reichsbank 
rate,  the  difference  between  these  two  rates  represents  the 
collection  charges. 

The  foregoing  applies  to  drafts  drawn  upon  cities  where 
"Filiales"  or  branch  offices  of  the  Berlin  correspondent  are 
located,  as  well  as  on  cities  where  no  branch  offices  exist, 
unless  arrangements  to  the  contrary  have  been  entered  into 
with  the  Berlin  correspondent  of  the  American  bank. 

Bills  of  the  foregoing  nature  are  usually  lodged  by  the 
Berlin  correspondent  with  the  Reichsbank  for  collection,  on 
the  aforesaid  terms. 

If,  however,  the  aggregate  amount  of  bills  lodged  with  the 
Reichsbank  for  collection,  amount  to  M.  20,000  and  are  com- 
prised of  bills  exceeding  M.  5000,  maturing  on  the  same  day, 


Curtailing  Collection  Charges.  141 

then  the  Reichsbank  only  deducts  five  days'  interest  at  its 
bank  rate,  the  same  as  for  bills  of  M.  10,000,  or  more,  instead 
of  ten  days. 

It  is  difficult  to  always  economize  collection  charges  in  this 
way,  and  the  American  banker  is  generally  charged  ten  days' 
interest  at  bank  rate,  for  bills  between  M.  5000  and  M,  10,000 
by  the  Berlin  correspondent,  while  such  correspondent  has  no 
difficulty,  owing  to  the  volume  of  his  business,  to  conform  to 
the  above  requirements,  thereby  profiting  by  the  operation. 


Chapter  XIX. 

THE  FRENCH   ACCOUNT. 

TH  E  French  Account  consists  of  a  chain  or  series  of  banks 
having  a  central  office  in  Paris,  and  branch  banks  located 
throughout  the  Republic;  the  head  or  central  banking-house 
is,  of  course,  of  National  importance.  The  system  of  the 
French  Account  resembles  that  of  the  German  plan  of  central 
and  branch  banking,  and  both  are  conducted  on  parallel  lines 
of  operation. 

The  leading  French  banking  institutions  have  branch  offices 
throughout  France,  and  an  account  opened  with  the  main 
office  in  Paris  with  one  of  these  institutions  gives  the  Ameri- 
can banker  the  same  facilities  with  respect  to  the  transaction 
of  his  business  with  the  French  Republic,  that  an  account  in 
Berlin  with  regard  to  his  international  exchanges  with  the 
German  Empire  secures. 

Drafts  may  be  drawn  upon,  and  bills  of  exchange  remitted 
by  the  American  banker  for  credit  to  Marseilles,  Havre,  Bor- 
deaux, and  other  French  cities  for  account  of  the  Paris  office. 

The  account  of  the  American  banker  is  inscribed  on  the 
books  of  the  principal  office,  and  all  transactions  of  the 
American  banking-house  witli  the  various  branch  offices  scat- 
tered from  Paris  toward  the  borders  of  the  French  Republic 
are  advised  to  the  home  office,  so  as  to  enable  the  parent 
bank  in  the  Capital  to  make  the  requisite  and  complete 
entries  thereof 

In  the  matter  of  details,  the  French  Account  proceeds  in 

exactly  the  same  channels  as  that  of  the  German  Account, 

Chapter    XVIII,    and    reference   thereto    is    made    for   such 

detailed  information. 

142 


Terms  and  Conditions. 


143 


The  rate  of  commission  exacted  by  French  bankers  for 
carrying  the  accounts  of  American  banks  ranges  from  one- 
fortieth  to  one -sixteenth  per  cent,  on  all  items  passing 
through  the  account,  the  rate  being  determined  by  the  vol- 
ume of  business. 


Assuming  that  an  account  has  been  opened  with  one  of 
the  prominent  French  banking  institutions  in  Paris,  having 
branch  offices  at  Marseilles,  Havre,  Bordeaux,  including  other 
cities  within  the  Republic  of  France,  and  furthermore,  taking 
into  consideration  the  French  banking  laws  with  respect  to 
bill-stamp  revenues,  the  present  task  will  be  to  ascertain  the 
prices  that  can  be  paid  for  the  various  types  of  bills  of 
exchange  drawn  upon  France,  based  upon  the  annexed  terms 
and  conditions,  to -wit: 

Bank  of  France,  minimum  discount  rate,     3%  per  annum; 

Private  or  open  market  discount  rate,  2  3/^%  per  annum; 

Commission  charged  by  French 

correspondent,  _         _         -         1/40%; 

Cheques  drawn  against  cash  funds  in  the  "j  -r-  ^  c 

u      J      r  4- u     J  c  ^\  Exempt  from 

hands  01  the  drawee  lor  account  >  ^  ,   , 

c   ,  i  stamp  duty; 

ot  drawer,        -         -         _         -      j  c         j  y 

Three -day  sight,  and  other  time  drafts,       1/20%; 


Interest  allowed  on  credit  balances, 


Interest  charged  on  cash  overdrafts, 


According  to 
money  market, 
usually  2%  under 
Bank  rate; 

Dependent  upon 
money  market, 
usually  2%  above 
Bank  rate; 


Price  at  which  Paris  cheques  can  be  sold 

in  New  York  market,       -         -         S-iS- 

Postage,  cablegrams  and  petty  expenses  to  be  charged  to 
the  account  of  the  American  bank. 


144        International  Exchange. 

This  quotation  of  5.15  signifies:  that  each  dollar  will  pur- 
chase 5  francs  and  15  centimes,  or  5  and  15/100  francs;  that 
being  the  customary  manner  to  quote  the  rate  for  French 
exchange. 

The  method  of  quoting  French  exchange,  to  those  unfa- 
miliar with  the  subject,  is  very  puzzling,  and  unless  thoroughly 
understood  is  apt  to  result  in  endless  confusion.  It  is  there- 
fore necessary  to  analyze  such  method  carefully. 

Thoroughly  fix  in  mind  that  the  higher  the  rate  the  lower 
the  quotation. 

For  example:  the  rate  of  5.15  is  lower  than  the  rate  of 
5.12^;  to  explain,  as  previously  stated,  the  rate  signifies 
the  amount  of  francs  and  fraction  of  a  franc  that  each  dollar 
will  purchase,  therefore,  the  rate  of  5.15 — meaning  that  for 
each  dollar  5  francs  and  15  centimes  will  be  exchanged — is 
lower  than  the  price  of  5.12^,  because  the  purchase  of  francs 
at  that  rate  is  less,  to -wit:    5  francs  and  12^  centimes. 

In  commercial  transactions,  French  exchange  is  quoted  in 
fractions  of  yi%,  or  ^  centime,  and  is  based  on  the  approxi- 
mate quotation  of,  say,  5  francs  to  the  dollar. 

To  illustrate:  the  quotations  read  thus:  5.15,  5.15^,  5.16^, 
5.16^,  5-i7>^,  5-i8>^,  S-i8^,  ranging  from,  say,  5.00  to  5.35. 

The  progression  is  arrived  at  in  the  manner  following: 
take  for  example,  the  quotation  of  5.15,  the  next  lower  quo- 
tation of  approximately,  y%%,  ^  centime,  is  5,15^,  found 
by  adding  ^%  of  5.00,  say,  .00625,  to  5,15,  the  sum  is 
5.15625,  and  is  expressed  5.15^. 

It  frequently  occurs,  however,  that  closer  quotations  are 
required  in  business  transactions  than  can  be  expressed  by 
the  fraction  of  the  %%,  ^  centime,  and  to  meet  these 
requirements  the  terms:  plus  1/16,  plus  1/32,  plus  1/64,  or 
less  1/16,  less  1/32,  less  1/64,  etc.,  are  employed. 


Fractional  Quotations.  145 

All  these  fractional  quotations  signify  per  cent,  and  are, 
therefore,  computed  on  the  dollar  amount  and  not  on  the 
franc  quotation. 

For  example:  the  rate  of  5.15^  less  1/16%  would  be  prac- 
tically equivalent  to  the  quotation  of  5- 16^  plus  1/16%,  and 
is  illustrated  in  the  subsequent  examples: 

Find  the  cost  of  a  Paris  cheque  for  5000  francs  at  the  rate 

of  5.15^  less  1/16%: 

Process: 

5.15625)5000.00000(969.69  $969.69 

4640625  Less  1/16%,        .60 

3593750  $969-09 

3093750  .ooi6)9.6969(.6o 

50  00000  96 

4640625  969 

3593750 

Find  the  cost  of  a  Paris  cheque  for  5000  francs  at  the  rate 
of  5.1634;  plus  1/16%: 

Process: 
5.1625)5000.0000(968.52  $968.52 


4646  25 

Plus  1/16%,           .60 

353750 

$969.12 

3097  50 

.ooi6)9.6852(.6o 

440000 

96 

413  000 

852 

270000 

258125 

I  18750 

I  03250 

From  the  foregoing  operations,  observation  will  show  that 
there  is  only  a  difference  of  three  cents  between  the  cost  of  a 
francs  5000  Paris  cheque  at  the  rate  of  5.15^^  less  1/16% 
as  compared  with  the  cost  at  the  rate  of  5.16^  plus  1/16%; 
and  the  rates,  although  differently  expressed,  are  practically 
identical.  10 


146  International  Exchange. 


What  price  shall  be  paid  for  a  ninety -day  sight  draft  on 

French    bankers,   or    prime    merchants,   documents    against 

acceptance: 

Example  I. 

Basis  of  calculation,  525  francs  for  each  $100.  This  is  in 
conformity  with  commercial  usage;  tables  on  this  basis  have 
been  compiled  and  are  in  general  use. 

Discount   to  be  deducted  by  French  correspondent,    fkancs. 

90  days'  interest  at  private  discount  rate,  2^%,  3.60 
Commission  charged  to  account  by 

correspondent,  -----  1/40%,  .13 
French  bill  stamp  duty,  _         -         _         1/20%,       .26 

Margin  of  profit  for  American  bank,      -         -     1/20%,       .26 

Total  charges  in  francs,     -         -         -         -  4.25 

To  be  deducted  from,  by  adding  to,  the  rate  of        -     515. 

519-25 
the  rate  that  can  be  paid  for  a  ninety-day  bill,  or  approx- 
imately 519^  plus  1/32%. 

Documentary  acceptance  bills  are  treated  by  the  French 

correspondent  in  like  manner  as  the  English  and  German 
correspondents  treat  such  bills  remitted  to  them,  and  are 
placed  to  the  credit  of  the  account  of  the  American  bank 
upon  receipt,  under  discount,  unless  specifically  instructed 
otherwise. 


The  French  Interest  Account.  147 


What  price  to  pay  for  a  sixty-day  sight  draft  on  a  merchant 
in  France,  documents  against  payment : 

Example  II. 
Basis  of  calculation,  525  francs  =  $100. 
Discount  to  be  deducted  by  French  banker,  or 


FRANCS. 


rebated  to  drawee  if  paid  upon  presentation, 
60  days'  interest  at  Bank  of  France  rate,    3%,         '"2.62 
Account  current  commission,  -         .         .     1/40%,       .13 

French  bill  stamp  duty,      -         -         .         .         1/20^,       .26 
Margin  of  profit  for  American  bank,      -         -    1/20%,       ,26 
Total  charges  in  francs,         -         -         .  3.27 

To  be  deducted  from,  by  adding  to,  the  rate  of      -      515. 

518:27 
gives  the  quotation  of,  approximately,  5  i8>^  ,  less  1/32%. 

The  bill,  if  not  placed  to  the  credit  of  the  account  of  the 
American  bank  upon  receipt,  under  discount,  by  the  French 
correspondent,  and  if  not  paid  by  drawee,  under  rebate, 
upon  original  presentation,  would  be  earning  accrued  inter- 
est to  the  credit  of  the  American  bank  for  the  time  such 
bill  is  held  in  portfolio  by  the  French  banker,  at  the  rate 
of  three  per  cent,  per  annum,  and  drawee  would  only  be 
entitled  to  rebate  of  interest  at  Bank  rate  for  the  unexpired 
time  from  date  of  payment,  or  retirement,  to  date  of  maturity. 


3%, 

-  1/40%, 
1/20  95>, 

-  1/20%, 

1.3 1 

.13 

.26 

.26 

- 

1.96 

>f-               515 

148        International  Exchange. 


What  price  shall  be  paid  for  a  thirty -day  sight  draft  on  a 
French  merchant,  documents  on  payment: 

Example  III. 

Basis  of  calculation,  525  francs=$ioo. 
Discount  to  be  deducted  by  French  banker,  or 

rebated  to  drawee  if  paid  on  presentation,  francs. 

30  days'  interest  at  Bank  rate, 
Account  current  commission, 
French  bill  stamp,       -         -         - 
Margin  of  profit  for  American  bank, 

Total  charges  in  francs, 
To  be  deducted  from,  by  adding  to,  the  rate  of  ■ 

516.95 
gives  the  quotation  of,  or  the  price  to  pay,  516.^,  less  1/64%. 

What  price  can  be  paid  for  a  three -day  sight  draft  on  Paris, 
documents  to  be  surrendered  on  payment: 

Example  IV. 

Basis  of  calculation,  525  francs=$ioo. 
Interest  to  be  deducted  by  French  correspond- 
ent, Bank  of  France  rate,  3  days'  at 
French  bill  stamp,  _         _        _         , 

Account  current  commission, 
Margin  of  profit  to  American  bank, 

Total  charges  in  francs,    - 
To  be  deducted  from,  by  adding  to,  the  rate  of 

^51578 

gives  the  price  which  can  be  paid  for  above  draft  of  515^4, 
less  1/32%. 


a- 

1% 

FRANCS. 
.13 

-    1/20%, 

.26 

1/40%, 

•13 

-   1/20%, 

.26 

- 

.78 

)f         . 

515- 

When  Paris  Account  Clearing- House.       149 

All  cheques  drawn  upon  the  Paris  office  and  its  branches 
are  debited  to  the  account  of  the  American  bank  upon  re- 
ceipt of  appertaining  advices,  so  that  the  interest,  accruing  on 
the  amount  of  cheques  not  promptly  presented  to  the 
drawees  for  payment,  is  a  source  of  revenue  to  the  benefit 
of  the  French  correspondent  in  Paris. 

In  conducting  this  account,  care  should  be  taken  to  avoid 
cash  overdrafts  which  are  expensive,  the  difference  between 
the  rate  of  interest  bonified  on  credit  balances  and  the  rate 
of  interest  charged  on  debit  balances  being,  as  a  rule,  greater 
in  this  than  any  other  European  account. 

Another  peculiar  feature,  requiring  especial  mention,  is, 
that  the  French  correspondents,  unlike  other  European 
bankers,  ordinarily  charge  an  extra  commission  for  executing 
telegraphic  transfer  payments  to  firms  or  individuals  not 
classified  as  bankers. 

Some  American  bankers,  not  having  a  sufficient  patronage 
with  Belgium,  Switzerland,  and  Italy  to  make  it  necessary  to 
open  accounts  with  the  respective  bankers  therein,  pass  all 
transactions  pertaining  to  these  countries  through  the  Paris 
account. 

When  these  transactions  are  cleared  through  Paris  as  the 
central  office,  the  custom  is  to  obtain  from  the  banking-house 
in  Paris  the  names  of  its  correspondents  in  the  several  foreign 
cities  in  Belgium,  Switzerland,  and  Italy,  and  to  forward  to 
them  the  American  remittances  and  issue  checks  direct  under 
simultaneous  advice  to  the  central  bank  in  the  City  of  Paris. 

As  rate  of  exchange  between  France  and  these  respective 
countries  rarely  is  quoted  at  par,  the  discount  or  premium  is 
adjusted  by  the  French  correspondent  and  entries  are  booked 
to  conform  thereto. 


I50        International  Exchange. 

Thus  it  will  be  seen  from  the  foregoing  facts,  that,  if  the 
American  bank  transacts  its  business  with  Belgium,  Switzer- 
land, and  Italy,  through  the  intermediate  French  Account, 
the  manager  of  The  Foreign  Department  of  the  American 
bank  should  obtain  from  his  Parisian  bank,  quotations  for 
exchange  in  the  Capital  of  the  Republic,  on  these  different 
countries,  to  enable  him  to  negotiate  business  of  this  nature 
without  loss. 


Chapter  XX. 

HOLLAND,  BELGIUM,  AND  SUNDRY  FOREIGN 
ACCOUNTS.     RUSSIA. 

THE  subject-matter  of  this  Chapter  presents  the  business 
inter-relations  created  by  the  accounts  of  American 
banks  with  the  respective  bankers  of  Holland,  Belgium, 
Austria,  Switzerland,  Italy,  Denmark,  Sweden  and  Norway. 

That  the  American  foreign  trade  with  these  countries  is 
not  as  extensive  as  that  with  England  and  Germany,  as  a 
matter  of  course,  is  admitted,  still  those  conversant  with  such 
international  interests  know  that  American  exports  to  Holland 
and  Belgium  assume  very  large  proportions. 

Austria,  Switzerland,  and  Italy  contain  a  number  of 
prominent  banking-houses  engaged  in  the  system  of  branch 
banking,  corresponding  to  that  in  England,  Germany,  and 
France;  and  relations  entered  into  with  any  one  of  these  insti- 
tutions in  the  respective  country  secures  for  the  American  bank 
like  banking  facilities,  both  with  the  central  and  branch  banks, 
for  the  execution  of  all  transactions  of  the  American  bank  in 
the  respective  country. 

The  fundamental  principles  of  the  banking  profession  are 
substantially  identical  throughout  Europe  so  far  as  the  inter- 
national accounts  with  American  banks  are  concerned,  and 
the  presentations  of  details  in  the  preceding  European 
accounts  apply  with  equal  force,  in  consequence,  to  the 
accounts  discussed  in  the  present  Chapter. 

European  bankers  are  very  aggressive,  and  their  competi- 
tion for  the  acquisition  of  accounts  of  foreign  banks  is  very 
keen,  resulting  favorably  for  the  establishment  of  American 
relations  with  the  bankers  of  Europe  at  the  present  time 
upon  much  more  favorable  terms,  than  was  possible  a  few 
years  ago.  15 1 


152  International  Exchange. 

In  fact,  in  many  instances,  no  commission  is  charged  for 
opening  accounts,  and  such  waiver  is  offset  by  the  profits 
derived  through  the  sale  of  foreign  exchange  to  the  American 
banker,  that  is  to  say,  remittances  to  other  countries  for  his 
account,  the  discounting  of  bills  remitted  by  him  for  credit, 
and  the  interest  account,  aU  afford  a  sufficient  compensation 
for  services. 

When  the  account  is  kept  "franco  commission,"  such 
concession  is  usually  partly  recovered  by  allowing  a  lower 
rate  of  interest  on  credit  balances,  and  charging  a  higher  rate 
on  overdrafts,  than  when  the  account  is  subject  to  commission. 

The  interest  account  is  adjusted  according  to  the  monetary 
condition  obtaining  in  the  respective  countries.  While  the 
conditions,  with  respect  to  the  interest  account,  vary  in  the 
different  countries,  and  is  a  matter  of  negotiation,  the  usual 
terms  are  as  follows: 

Interest  on  credit  balances,  i%  below  official  Bank  rate;* 

Interest  on  debit  balances,  i%  above  official  Bank  rate.* 

The  respective  operations  appertaining  to  the  several 
accounts  mentioned  in  this  Chapter  follow. 

The  Holland  Account. 

The  Holland  Account  is  the  most  important,  and  the 
larger  portion  of  bills  of  exchange  on  Holland  are  drawn  on 
Rotterdam  and  Amsterdam.  An  account,  opened  with  a 
banking  institution  in  either  city,  would  enable  the  American 
bank  to  remit  bills  and  issue  checks  on  the  other  Dutch  city, 
for  the  reason,  that  the  Rotterdam  correspondent  has  an 
account  in  Amsterdam,  and  the  Amsterdam  correspondent 
with  like  facilities  in  conjunction  with  the  Rotterdam  bank 
will  courteously  reciprocate. 
*  Of  the  respective  countries. 


The  Florin,  Guilder  or  Gulden.  153 


Dutch  Terms  and  Conditions. 

Bills  of  exchange  remitted  to  the  Dutch  correspondent  for 
collection  and  credit  are  treated  by  him  in  exactly  the  same 
manner  that  the  German  banker  clears  bills  sent  by  the 
American  banker  for  that  purpose. 

A  general  basis  for  establishing  and  calculating  the  prices 
to  pay  for  the  different  kinds  of  bills  of  exchange  drawn  upon 
Holland  assumes  the  discount  rates  in  Holland  and  the  price 
that  American  checks  can  be  sold  on  Holland  are  as  follows, 
including  further  the  account  current  commission  and  full 
observance  of  the  Laws  of  Holland  relative  to  the  subjoined 
bill  stamp  duties: 

Bank  of  the  Netherlands  discount  rate,    3^%  per  annum; 
Open  or  private  rate  of  discount,     -      3%  per  annum; 
Checks,  and  three -day  sight  drafts, 

bill  stamp  duties,         -        florin,  .05  on  each  draft, 

irrespective  of  amount, 

All  other  time  drafts,        ...       >^  7oo5 
Account  current  commission,         -  %  °L  '> 

Price   obtainable   in    New   York  for 

checks  on  Holland,       -         -     40^  cents  per  florin. 

The  monetary  unit  of  Holland  is  the  florin,  guilder  or  gulden, 
and  one  florin  equals  100  cents. 


154       International  Exchange. 


What  price  to  pay  for  a  sixty -day  sight  draft  on  Dutch 
bankers,  or  prime  merchants,  documents  against  acceptance: 

Example  I. 
In  computing  interest,  the  American  value  of  a  florin  is, 
approximately,  40  cents;  hence  the 

Basis  of  calculation  will  be  100  florins =$40. 
Discount  to  be  deducted  by  Holland 

banker,  at  private  or  open  market 

rate,  60  days'  interest,      -         -     3%  per  annum,  ,20 
Dutch  bill  stamp,        -         -         -  >^7oo»  -02 

Margin  of  profit  for  American  bank,      >^7oo»  -02 

Commission    charged    American 

account  by  Holland  banker,     -      ^7oo>  01 

Making  the  total  charges  thereon  of  .25 

and  deducting  from  40.25,  40^,  the  selling  price  of  American 
checks  in  New  York  City,  gives  the  rate  of  40  cents,  the  price 
the  American  banker  can  afibrd  to  pay  for  the  above  bill. 


Drafts  on  Holland.  155 


To  find  the  price  for  a  sixty-day  sight  draft,  on  a  merchant, 
documents  against  payment : 

Example  II. 

Basis  of  calculation,  100  florins  =$40. 
Discount  to  be  deducted  by  Holland 

correspondent,  interest  at  Bank 

rate,  60  days,  at         -         -         -  3J^%  per  annum,  .24 

Dutch  bill  stamp,  -         -         -         ^%o.  -02 

Commission  charged  by  Holland  bank,    X%o»  'O^ 

Margin  of  profit  for  American  bank,       /^7oo'  -O^ 

Total  charges,  -        _        _         _         .29 

and  subtracting  from  the  quotation  of  40.25,  price  for  checks, 
gives  the  rate  of  39.96,  or,  approximately,  39  15/16  plus  1/16 
per  cent.,  the  value  of  the  above-described  bill. 


What  price  to  pay  for  a  thirty -day  sight  draft  on  a  Dutch 
banker,  or  prime  merchant,  documents  against  acceptance : 

Example  III. 

Basis  of  calculation,  100  florins  =  $40. 
Discount  to  be  deducted  by  Holland 

banker,  interest   at  private  rate, 

30  days,  at         -         -        - 
Dutch  bill  stamp,  -         -         - 

Commission  in  account  current, 
American  banker's  margin  of  profit, 

Total  charges,  -         -         -         -  .15 

and  deducting  from  40.25,  the  price  for  Holland  checks  in 
New  York  City,  gives  the  quotation  of  40.10,  expressed  40^ 
less  1/16  per  cent.,  the  value  of  the  above  bill. 


%  per  annum. 

.10 

>^7oo. 

.02 

XVoo. 

.01 

>^7oo. 

.02 

y/,%  per 

annum, 

.12 

K7oo, 

.02 

^7oo, 

.01 

>^7.o. 

.02 

156       International  Exchange. 

To  find  the  value  of  a  thirty -day  sight  draft  drawn  upon  a 
merchant  in  Holland,  documents  against  payment: 

Example  IV. 

Basis  of  calculation,  100  florins =$40. 
Discount  to  be  deducted  by  Holland 

banker,  interest  at  Bank  rate, 

30  days,  at         -         -         - 
Dutch  bill  stamp, 
Commission  on  account  current, 
Margin  of  American  profit,  - 

Total  charges,         -         -        -         -         -  .17 

and  deducting  from  40.25,  the  rate  for  checks  on  Holland, 
gives  the  rate  of  40.08,  expressed  40  1/16  plus  1/16  per  cent., 
the  price  of  the  above  bill. 

What  price  to  pay  for  a  three -day  sight  draft  on  Holland 
merchant,  or  banker,  documents  against  payment  or  acceptance: 

Example  V. 

Basis  of  calculation,  100  florins=$40. 

Discount  to  be  deducted  by  Holland 
banker,  or  proceeds  of  bill  cred- 
ited value  per  date  of  maturity, 
3  days'  interest  at         -         -         3/^%  per  annum,  .02 

Commission    charged    by    Holland 

banker, ^%„,  .01 

Margin  of  profit  to  American  banker,    >^7oo»  -^^ 

Bill  stamp,  5  cents  in  Dutch  money, 

too  small  to  include,       -         -  .00 


Total  charges,         _         _         -         -  .05 

and  deducted  from  40.25,  the  price  for  checks,  gives  the  rate 
of  40.20,  expressed  403/16  plus  1/16  per  cent,  the  price  to 
pay  for  above  draft. 


Basis  for  Purchase  of  Dutch  Bills.         157 

Examination  of  the  preceding  examples  will  disclose  that 
the  values  of  the  various  types  of  bills  of  exchange  were 
based  upon  the  price  for  which  checks  could  be  sold  to 
bankers  in  New  York  City. 

The  American  exports  to  exceed  the  imports  from  Hol- 
land, thus  creating  large  credit  balances  in  favor  of  American 
banks  on  the  books  of  account  of  their  Dutch  correspondents. 
These  credit  balances  are  transferred  by  the  purchase  in 
Holland  of  London  checks  to  the  credit  of  the  American 
banks  on  the  ledger  folios  of  their  London  correspondents, 
so  that,  virtually,  the  purchase  of  bills  drawn  upon  Holland 
is  equivalent  to  the  purchase  of  pounds,  Sterling,  and  the 
purchase  of  Dutch  bills  is  based  upon  the  cost  of  pounds, 
Sterling,  laid  down  in  the  City  of  London. 

It  will  be  readily  understood  from  the  foregoing  statement 
that  the  cost  of  converting  Dutch  florins  into  English  pounds, 
Sterling,  must  be  taken  into  consideration,  and  to  determine 
such  cost  daily  telegraphic  quotations  covering  the  price  of 
London  checks  in  the  Holland  market,  for  prompt  remittance 
and  delivery  within  fifteen  days,  are  received  by  American 
banks  from  their  correspondent  in  Holland. 

The  triangular  operation  of  remitting  funds  from  the  United 
States  to  England  through  the  circuitous,  or  indirect,  offices  of 
Holland,  referred  to  in  the  preceding  paragraphs,  describes 
what  is  termed  an  Arbitrage  Transaction,  and  Chapter  XXVI 
will  be  devoted  to  the  very  important  international  clearings 
of,  and  international  dealings  in,  bills  of  exchange,  under  the 
title  of  *  Arbitrage  Transactions." 


158  International  Exchange. 

The  Belgian  Account. 

The  monetary  unit  of  Belgium,  with  its  one  hundred 
centimes,  is  the  franc,  the  same  as  that  of  France;  and  the 
money  value  of  both  countries  being  identical,  it  follows  that 
quotations  for  bills  of  exchange  on  Belgium  are  expressed 
in  like  manner  as  bills  of  exchange  on  the  Republic  of 
France. 

The  Belgian  Account  is  opened  usually  with  bankers  at 
Antwerp,  and  there  all  bills  drawn  upon  Belgium  are  remitted 
for  collection  and  credit.  Of  course,  bills  on  Brussels,  Ghent, 
and  other  cities  therein  may  be  sent  direct  to  the  correspond- 
ents of  the  Antwerp  bank  in  those  centres  for  its  account. 
Belgium  is  a  comparatively  small  country,  and  American 
arrangements  with  one  of  its  series  of  banks  do  not  reach 
the  same  importance  that  such  banking  ties  with  other 
European  states  of  greater  area  command. 

The  price  for  checks  on  Antwerp  is  quoted  daily  by  New 
York  City  financiers,  and  such  quotations  are  based  upon  the 
price  for  checks  on  Paris,  or  the  cost  of  pounds,  Sterling, 
remitted  to  London,  via  Antwerp,  by  the  purchase  in  Antwerp 
of  checks  on  Paris  and/or  London.  Such  clearings  more 
properly  come  under  the  head  of  "Arbitrage  Transactions," 
and  the  operation  mentioned  will  be  presented  in  the  Chapter 
bearing  that  name.  For  the  present,  the  purchase  of  bills  on 
Belgium  based  upon  the  price  of  checks  on  Paris  will  first 
receive  attention. 

The  American  banker  will  arrange  with  his  Antwerp 
correspondent  for  daily  or  semi-weekly  telegraphic  quotations, 
covering  the  prices  for  checks  on  London,  checks  on  Paris, 
and  the  private  or  open  market  discount  rate.  These  quota- 
tions serve  only  as  a  guide,  for  the  reason  that  the  bankers 
in  Belgium  as  a  rule,  unlike  other  European  banking-houses, 
refuse  to  make  quotations  for  foreign  exchange  deliverable 


Possible  Loss  in  Exchange.  159 

within,  say,  fifteen  days;  consequently  the  American  bank 
can  not  protect  itself,  by  contract,  against  possible  loss  in 
exchange,  during  transit  of  bills.  To  this  extent,  business 
with  bankers  in  Belgium  is  speculative  in  the  smallest  degree, 
since  their  transactions  are  limited,  and  any  loss  occasioned 
in  one  instance  by  an  advance  in  Belgium  for  foreign 
exchange  is  generally  offset  in  another  instance  by  a 
decline. 

Belgian  Terms  and  Conditions. 

Assume  relations  with  an  Antwerp  banker  have  been 
consummated,  and  that  the  current  quotations  are  as  herein- 
after expressed,  including  the  expense  for  bill  stamp  duties; 

Bank  of  Belgium  discount  rate,      -         -     3j4%  per  annum; 

Private  or  open  market  discount  rate,  3%  per  annum; 

Commission  charged  in  Antwerp  account,     1/40%; 

Commission  charged  in  Paris  account,     -       1/40%; 

Bill  stamp  duty  for  3  days'  sight,  and 

other  time  bills  of  exchange,  -         -       1/20%; 

Checks  drawn  against   cash  funds  in  ^       r?  ^  c 

.,  .**        ^j  r^uf       rLxempt  from 

the  possession  of  drawee  for  the  >-    .  ,  ^^ 

*.    r  J  I  stamp  duty; 

account  of  drawer,  -         -  J  t-        j  ^ 

Checks  on  Paris  in  Antwerp,  selling  at  ^%  premium; 

C      According   to 

Interest  allowed  on  credit  balances,    -    <  n        /^    u  1     ' 

'  i  usually   1%  below 

'  Bank  rate; 

C      According    to 

Interest  charged  on  debit  balances,     -     -K  •,/   ^        rrt      u       ' 
^  '  i  ^   to   1%   above 

'Bank  rate; 
Price  at  which  checks  on  Paris  can  be  sold,  5.15. 


i6o 


International  Exchange. 


Price  Sixty -day  Sight  Drafts  on  Antwerp. 

What  price  shall  be  paid  for  a  sixty- day  sight  draft  on  a 
merchant  in  Antwerp^  documents  to  be  surrendered  on  payment: 

Example  I. 

Basis  of  calculation,  525  francs=$ioo. 
Discount  to  be  deducted  by  Antwerp  bank, 

60  days'  interest  at  3>^%  per  annum,  prancs. 

Bank  rate, 3.06 


Commission  in  Antwerp  account,     - 
Commission  in  Paris  account, 
Belgian  bill  stamp,  -        -        - 

Premium  for  checks  on  Paris, 
Margin  of  profit  for  American  bank, 
Total  charges  in  francs,    - 


1/40%, 

-  1/40%, 
1/20%, 

-  1/8%, 
1/10%, 


.13 
.13 
.26 
.66 
.51 


4-75 


to  be  deducted  from,  by  adding  to,  the  quotation  of  5.15,  the 
price  for  checks  on  Paris,  gives  the  rate  of  5.1975,  expressed, 
approximately,  5.19^  less  1/16%,  the  price  that  can  be  paid 
for  the  above  bill. 


Two  Account  Commissions.  i6i 


Belgian  Bills. 

The  preceding  example  discloses  that  bills  of  exchange  on 
Belgium  are  purchased  on  the  same  basic  principles  that  bills 
drawn  upon  France  are,  with  the  exception  that  the  factors 
of  premium  or  discount  for  checks  on  Paris  in  Antwerp,  and 
that  two  account  commissions,  instead  of  one,  have  to  be 
allowed  for,  to  ascertain  the  total  charges  on  Belgian  bills ; 
provided,  of  course,  such  bills  are  bought  on  the  basis  of  the 
remittance  of  proceeds  to  the  Paris  correspondent  through 
the  intervening  Antwerp  account,  and  checks  on  Paris  issued 
against  such  proceeds  by  the  American  bank. 

Bills  on  Belgium  drawn  upon  cities  outside  of  Antwerp 
should  include  the  exchange  charges,  if  any,  for  their 
collection,  according  to  the  arrangement  with  the  Antwerp 
correspondent. 

The  foregoing  explanation,  in  conjunction  with  Example 
I,  will  suffice  to  determine  what  prices  should  be  paid  by  the 
American  bank  for  the  different  types  of  bills  of  exchange  on 
Belgium,  without  further  illustration  by  the  several  examples 
worked  out  in  the  French  Account,  and  there  given  for 
reference,  if  necessary. 

In  computing  the  values  of  the  different  bills,  it  will  be 
well  to  remember  that  all  bills  of  exchange  accompanied  by 
documents  to  be  surrendered  to  drawees  on  acceptance  are 
discountable  at  the  private  or  open  market  discount  rate, 
whereas,  documentary  payment  bills  are  subject  to  the  official 
Bank  rate. 


II 


i62  International  Exchange. 

Austria,  Switzerland,    Italy,    Denmark, 
Sweden,  and  Norway. 

The  affairs  of  a  Nation  naturally  appeal  by  reason  of  its 
power  and  importance  to  the  minds  of  all  men,  and  especially 
so  when  property  rights  evidenced  by  moneys  and  securities 
are  the  subject  for  earnest  consideration.  With  that  thought 
present,  discussion  follows  of  the  American  international 
banking  relations  with  Austria,  Switzerland,  Italy,  Denmark, 
Norway,  and  Sweden,  although  the  volume  of  trade  and 
exchange  is  comparatively  light  with  these  countries,  and 
each  of  them. 

For  the  accommodation  of  the  American  bank's  clientele, 
and  the  general  community  at  large,  direct  and  active 
association  should  be  established  with  bankers  in  those 
European  states,  because  no  foreign  department  will  or  can 
be  considered  complete  without  full  facilities  for  the  transac- 
tion of  all  business  passing  through  these  respective  and 
distinct  accounts. 

The  direct  exports  from  the  United  States  to  Austria, 
Switzerland,  Italy,  and  the  Scandinavian  countries,  are  small, 
with  the  result  that  commercial  bills  of  exchange  on  those 
territories,  especially  Austria  and  Switzerland,  are  rarely 
offered  to  American  banks  for  negotiation.  In  fact,  so  few 
bills  are  tendered  by  exporters  for  sale,  that  the  credit 
balances  on  the  books  of  the  banking  institutions  of  those 
nations  mentioned,  in  favor  of  American  banks  and  required 
by  them  for  checking  purposes,  are  largely  created  by 
remittances  of  American  bankers'  checks,  drawn  in  pounds. 
Sterling,  upon  their  London  correspondents,  and  subsequently 
converted  by  the  banker  to  whom  remitted  for  credit  into  the 
money  of  the  respective  country,  at  the  official  current  rate 
of  exchange  upon  receipt. 


Direct  Trade  Relations  with  Italy.         163 


European  Cities  Clearing- Houses  for  American  Goods. 

Bankers'  checks  on  London  are  in  demand  and  negotiable 
throughout  the  world,  and  therefore  serve  as  an  excellent 
remittance  for  cover,  the  loss  of  exchange  by  virtue  of 
conversion  being  only  nominal. 

The  foregoing  remarks  should  not  create  the  impression 
that  American  products  are  not  largely  purchased  and 
consumed  by  the  people  of  the  countries  referred  to.  On 
the  contrary,  while  the  direct  exports,  as  previously  stated, 
are  small,  the  indirect  exports  from  America  to  these  countries 
assume  large  proportions. 

The  large  European  cities  serve  as  the  distributing  centres 
of  American  goods,  and  a  very  large  percentage  of  bills  of 
exchange  issued  upon  mercantile  firms  on  these  cities 
represents  merchandise  that  is  re-sold  by  such  persons  to  the 
people  of  the  countries  previously  mentioned.  In  this  manner 
London,  Berlin,  Hamburg,  Antwerp,  and  Rotterdam,  for 
example,  act  as  clearing-houses  for  American  products. 

Within  the  last  few  years,  the  direct  trade  relations  of 
American  exporters  with  merchants  in  Italy  and  the  Scandi- 
navian countries  have  increased  materially,  and  it  is  to  be 
hoped  that  American  exporters  will  be  successful  in  their 
efforts  to  establish  similar  relations  with  the  merchants  of 
Austria  and  Switzerland. 


i64  International  Exchange. 


The  Austrian  Account. 

Branch  banking,  as  stated  in  the  beginning  of  this  Chapter, 
is  conducted  by  a  number  of  the  leading  banking  institutions 
in  Austria.  Consequently,  an  account  opened  by  an  American 
bank  with  any  one  of  these  institutions  having  its  parent  or 
head-office  domiciled  in  Vienna  would  give  the  American 
bank  correspondents  in  the  cities  of  Prague,  Budapest, 
Triest,  and  other  Austrian  centres,  where  its  branch  offices 
are  located. 

The  comparatively  small  volume  of  business  passing 
through  this  Account  necessarily  enforces  payment  of  a 
commission  larger  than  that  charged  by  European  bankers 
with  whom  larger  operations  are  consummated. 

Assume  that  an  account  has  been  opened  on  the  books  of 
a  Vienna  banker  upon  the  subsequent  terms  and  conditions: 

Account  current  commission,      -         -     }i% ; 

{1%  under  official 
Austro -Hungarian 
Bank  rate; 

C  1%  above  official 
Interest  charged  on  debit  balances,     <  Austro -Hungarian 

(^  Bank  rate; 

Brokerage,  cablegrams,  postage,  etc.,  to  be  debited  to  the 
account. 

Conceding  further  that,  owing  to  the  scarcity  of  commercial 
bills  of  exchange  on  Austria,  as  previously  explained,  the 
American  banker,  desirous  of  creating  a  credit  balance  in 
Vienna  for  his  requirements,  remits  his  check  on  London  for 
;^400  to  his  Vienna  representatives. 


Cost  of  Credit  Balances  in  Vienna.         165 

What  will  such  credit  balance,  in  crowns,  created  in  this 
manner,  cost,  if  Sterling  checks  are  worth  $4.86  per  pound. 
Sterling,  in  America,  and  a  pound,  Sterling,  will  be  credited  at 
23.915  crowns  in  Vienna: 

Example. 

Selling  price  for  American  banker's  draft 
on  London,  on  date  of  remittance 
to  Vienna,  value  of  ;^400  at  $4.86 
per  pound.  Sterling,      _         .         .         -       $1944. 

Commission  charged  in  account  by- 
Vienna  correspondent,     -         -         -     j4%,         2.43 

Bill  stamp   duty,  on   Sterling  checks, 

sold  in  Austria,  approximately,         -     i/sVoo*       -4*^ 
Total  cost  of  ;^400  in  Vienna,  -         -       $1946.83 

If  one  pound,  Sterling,  is  worth  23.915  crowns,  i!^40O  will 
be  worth  9566  crowns;  and  since  9566  crowns  cost  the 
American  banker  in  the  Vienna  account  $1946.83,  one  crown 
would  cost  as  much  as  9566  crowns  are  contained  times  in 
$1946.83,  or  .2035 -|-,  and  ascertained  thus: 

9566.)  I  94 6.8  3  (.2  03  5  + 
I  9  I  32 

33630 
28698 

49320 
47830 

The  cost  of  the  credit  balance  being  ascertained,  as  illus- 
trated in  above  example,  the  American  banker  will  add 
whatever  profit  he  desires  to  such  cost,  and  sell  his  own 
checks  on  Vienna  accordingly. 

When  the  American  banker  is  called  upon  to  purchase 
commercial  bills  of  exchange  drawn  in  the  money  of  Austria, 
viz:  crowns  and  decimals  of  a  crown,  the  heller,  he  will 
ascertain  the  prices  that  can  be  paid  for  them  in  the  same 
manner  as  explained  in  previous  chapters,  first  obtaining  the 
discount  rates  from  his  foreign  exchange  broker. 


i66  International  Exchange. 


The  Swiss  Account. 

The  Republic  of  Switzerland  also  has  a  number  of  large 
banking  institutions  engaged  in  the  branch  banking  system, 
and  an  account  opened  by  an  American  bank  with  any  one 
of  these  banks,  secures  for  it  correspondents  in  St.  Gall, 
Basel,  Zurich,  and  other  cities  in  Switzerland  where  the  parent 
banking-house  may  have  branch  offices. 

The  Swiss  monetary  unit  is  the  franc  with  its  lOO  centimes, 
exactly  as  in  France  and  Belgium;  and  quotations  for 
exchange  on  Switzerland  are  expressed  in  the  same  way  as 
French  and  Belgian  exchange. 

Commercial  bills  of  exchange  on  Switzerland  are  not 
offered  freely  by  exporters,  but  are  presented  more  frequently 
than  bills  on  Austria;  and  since  the  requirements  for  checking 
purposes  are  commensurately  small,  the  cash  credit  balances 
required  in  the  Swiss  account  can  usually  be  created  by  the 
purchase  of  commercial  bills  of  exchange. 

The  main  principles  for  calculating  the  prices  that  should 
be  paid  for  bills  of  this  type  are  identical  with  the  elements 
pertaining  to  the  purchase  of  commercial  bills  of  exchange 
drawn  upon  Belgium,  and  reference  to  the  example  in  the 
Belgian  Account  will  supplement  and  complete  the  Swiss 
Account. 

Mention,  however,  must  be  made  in  this  connection,  that 
the  premium  or  discount  for  checks  on  Paris  in  Switzerland 
usually  varies  from  the  quotations  obtaining  in  Belgium  for 
Paris  checks,  and  exact  data  covering  this  factor  should  be 
obtained  from  the  Swiss  correspondent  direct,  or  from  the 
foreign  exchange  broker,  before  bills  on  Switzerland  are 
bought. 


Swiss  Terms  and  Conditions.  167 

And  further,  it  should  be  noted,  that  if  the  proceeds  of  bills 
purchased  are  intended  for  credit  on  the  books  of  the  Swiss 
correspondent,  and  are  not  to  be  remitted  for  account  of  the 
American  bank  by  the  Swiss  banker  to  Paris,  then  one 
commission,  that  of  the  Swiss  banker,  will  only  be  taken  into 
consideration,  the  Paris  account  current  commission  not 
entering  into  the  transaction  at  all. 

Should  it  be  impossible,  however,  to  cover  the  Swiss 
account  for  requisite  amounts  by  the  purchase  of  commercial 
bills,  then  recourse  can  be  had  by  the  remittance  of  either 
bankers'  checks  on  London  in  pounds,  Sterling,  or  bankers' 
checks  on  Paris  in  francs,  both  being  equally  available  by 
Swiss  bankers,  and  both  types  of  remittance  will  be  placed 
to  the  credit  of  the  account  of  the  American  bank,  upon 
receipt,  at  the  official  current  rate  of  exchange  by  the  banker 
to  whom  transmitted. 

The  terms  and  conditions  for  creating  American  inter- 
national relations  in  banking  between  the  Swiss  and  American 
bankers,  in  common  with  the  conduct  of  every  European  account, 
depend  upon  the  volume  and  character  of  the  transactions 
passing  through  the  account. 

Ordinary  accounts  can  be  established,  however,  by 
American  banks  with  Swiss  banking  institutions  on'  the 
following  basis: 

Account  current  commission,      -         .     1/°/    • 

T   .        ,  ,.   .    ,  r>^^  under  official 

Interest  on  credit  balances,  per  annum,  j         Bank  rate, 

(  maximum  rate  3%; 

T  .        ^         1  ,  .    ,    ,  ( H^o    over  official 

Interest  on  debit  balances,  per  annum,  ^         Bank  rate, 

(  minimum  rate  4%; 
Postage,  cablegrams  and  petty  disbursements  to  be  charged 
to  the  account. 


1 68  International  Exchange. 

The  Italian  Account. 

The  direct  exports  from  the  United  States  to  Italy  have 
increased  largely  during  the  past  few  years,  in  fact  to  such  an 
extent  that  while  heretofore  American  credit  balances  on  the 
books  of  the  American  correspondents  in  that  Kingdom  were 
usually  created  by  the  remittances  of  bankers'  checks  on 
London  or  on  Paris,  and  converted  at  the  current  rate  of 
exchange;  nowadays,  owing  to  the  increase  in  exports,  the 
international  tide  has  turned,  and,  instead  of  remittances 
from  America  to  Italy,  such  exchanges  flow  from  the  Italian 
cities  to  the  American  states. 

Commercial  bills  of  exchange,  drawn  upon  the  several 
cities  in  Italy,  are  offered  by  exporters  in  amounts  in  excess 
of  requirements  for  checking  purposes,  and  this  surplus  is 
generally  remitted  by  the  banker  there  to  the  Paris  corre- 
spondent for  account  and  credit  of  the  American  bank. 

These  bills  of  exchange  are  ordinarily  drawn  at  sight,  or 
at  three  days'  sight,  and  are  made  payable  in  francs  at  the 
current  rate  of  exchange  for  bankers'  checks  on  Paris,  and,  in 
consequence,  the  cost  of  exchange  on  Paris  must  be  paid  by 
the  drawees  of  the  bills. 

Another  illustration  of  the  popularity  of  branch  banking 
in  Europe  is  its  use  in  the  Kingdom  of  Italy,  wherein  are  a 
number  of  banking  institutions  of  national  importance  with 
branches  in  all  of  the  leading  cities,  including  Rome,  Genoa, 
Naples,  and  Venice;  and  association  formed  by  the  opening  of 
an  account  with  an  Italian  bank,  being  one  of  the  links  in  the 
banking  chain,  affords  the  many  facilities  to  the  American 
banker  of  the  branch  banking  system  within  the  confines  of 
Italy. 

The  Italian  account  is  conducted  in  the  monetary  unit  of 
Italy,  called  the  lira,  and  composed  of  one  hundred  centesimi; 
the  lira  has   the  equivalent   value  of  the  franc  of  France, 


Italian  Terms  and  Conditions.  169 

Belgium,  and  Switzerland;  the  exchange  quotations  are 
generally  expressed  in  the  same  manner  as  exchanges  on 
those  countries,  although  frequently  the  price  of  one  lira  is 
quoted.  Bankers  sometimes  also  quote  the  price  of  one  franc 
in  selling  drafts  for  small  amounts  on  the  countries  of  France, 
Belgium,  and  Switzerland,  instead  of  expressing  the  rate  in 
the  number  of  francs  to  the  dollar,  as  stated  in  the  previous 
chapters. 

Admit  that  an  account  by  an  American  bank  has  been 
opened  with  one  of  the  Italian  banking  institutions  with 
its  branch  offices  on  the  following  terms  and  conditions,  and 
assume  full  compliance  with  the  Laws  of  Italy  oertaining 
to  bill  stamp  duties: 

Account  current  commission,  -         _         _     5^%^; 

Commission  for  collecting  bills,  and 

remitting  proceeds  to  Paris,     -         -         -      ^VooJ 

Interest  allowed  on  credit  balances,     [Adjusted  according 

Interest  charged  on  debit  balances,     j     ^°  ^^^  monetary 

°  V  conditions; 

Bill  stamp  duty  on  sight  bills,  approximately,      i/io7oo> 
Bill  stamp  duty  on  three -day  sight 

drafts,  approximately,    -         -         -         .     i5^%o- 

Postage,  cablegrams,  and  necessary  disbursements  to  be 
charged  to  the  account. 

Commercial  bills  of  exchange  tendered  for  sale  by 
exporters  are  quite  limited  in  number,  and,  by  way  of 
illustration,  attention  is  directed  to  the  manner  of  ascer- 
taining the  value  of  a  bill  drawn  on  Italy  in  francs,  payable 
at  the  rate  of  exchange  for  bankers'  checks  on  Paris. 

The  purchase  of  such  bills,  when  the  proceeds  are  remitted 
to  Paris  by  the  banker  in  Italy,  is  practically  tantamount  to 
the  buying  of  bills  on  Paris,  and  therefore  the  basis  of 
purchase  will  be  made  upon  the  price  the  American  bank 
can  sell  its  Paris  checks,  to -wit:  5.15. 


I/O  International  Exchange. 


Price  of  Three  -  Day  Sight  Draft  on  Italy. 
Example  I. 

What  price  to  pay  for  a  three -day  sight  bill  drawn  upon  a 
merchant  in  Italy,  payable  at  the  rate  of  exchange  for  bankers* 
checks  on  Paris,  documents  on  payment: 

Basis  of  calculation,  525  francs =$100. 

Commission  charged  by  Italian  banker 

for  collecting  and  remitting  proceeds  francs. 

of  draft  to  Paris,  .  _  -  -  ^7oo'  -^S 
French  account  current  commission,  -  }i°looy  -^3 
Discount  to  be  deducted  in  Italy  for  three 

days'   interest,  and  loss  of  interest 

during  transit  from  Italy  to  Paris, 

approximately,  -         -         -         - 

Italian  bill  stamp,  approximately,  - 
Margin  of  profit  for  American  bank,  - 

Total  charges  in  francs,  -         -         -     1.96 

to  be  deducted,  by  adding  to,  the  rate  of  5.15,  gives  the  rate 
of  516.96,  expressed,  approximately,  516^^,  less  1/32  per 
cent.,  the  price  to  pay  for  above  draft. 


%%, 

.66 

I^^Voo, 

.78 

KVoo- 

.26 

Italian  Account  Current  Commission.       171 


When  no  Charge  for  Italian  Commission. 

It  will  be  observed  that  in  the  above  example  no  charge 
was  included  for  the  Italian  account  current  commission,  for 
the  reason  that  the  transaction  did  not  pass  through  the 
Italian  account. 

Had  the  bill  been  forwarded  to  the  Italian  banker  for 
collection  and  credit,  instead  of  remittance  of  proceeds  to 
Paris,  then  the  French  account  current  commission  should 
not  be  considered,  and  in  that  event  the  following  charges 
would  have  been  incurred: 

FRANCS. 

Italian  account  current  commission,  -        -     ^%o»  -^^ 
Interest  in    Italy,  deducted  by  banker, 

three  days,  about  -         -        -         1/32°/^,  .16 

Italian  stamp  bill,  approximately,  -     i^7oo»  -7^ 


Francs,     .--_.__     1.20 

and  the  proceeds  of  the  bill  would  have  been  placed  to  the 
credit  of  the  American  bank,  upon  the  books  of  the  Italian 
banker,  at  the  current  buying  rate  of  exchange  for  bankers' 
checks  on  Paris. 


1/2  International  Exchange. 

The  Scandinavian  Accounts, 
Embracing  Denmark,  Norway,  and  Sweden. 

The  carriers  by  water  with  their  bulging  cargoes  of 
American  exports  for  the  Norse  countries  plow  the  sea  and 
deliver  their  burdens  there  in  annual  volume  of  large  propor- 
tions; the  bills  of  exchange  issued  on  the  merchants  of  these 
kingdoms,  in  payment  for  goods  exported,  do  not  pursue  a 
direct  course  like  their  appertaining  merchandise,  nor,  except 
occasionally,  are  such  evidences  of  debt  drawn  in  the  monetary 
unit  of  the  Norsemen,  called  the  krone  or  crown  with  its  loo 
ores,  but  such  securities  are  chiefly  drawn  in  the  English 
pound,  Sterling,  and  the  German  mark. 

A  very  large  percentage  of  the  Sterling  bills,  issued  against 
exports  to  Denmark,  Norway,  and  Sweden,  are  drawn  at 
ninety  days'  sight  upon  banks  and  bankers  domiciled  in 
London,  and  do  not  enter  into  the  Norse  accounts,  but  pass 
through  the  English  Account. 

Credits  are  opened  by  the  Scandinavian  merchants  them- 
selves direct,  or  through  the  aid  of  local  bankers,  with  the 
banking  institutions  in  London,  and  against  these  credits  the 
aforesaid  ninety -day  sight  drafts  are  issued  by  American 
sellers. 

Money,  ordinarily,  is  cheaper  in  England  than  in  the  Triple 
countries  mentioned,  and  Scandinavians,  desirous  of  purchas- 
ing goods  on  ninety  days'  time,  can  operate  more  effectively, 
in  consequence,  by  opening  credits  with  London  bankers 
than  with  the  Scandinavian  banking-houses,  including  the 
extra  commission  exacted  by  the  London  City  banks  for 
accepting  drafts  for  their  account;  and  further,  the  American 
exporters  prefer  reimbursement  on  London  banks  for  the 
reason  that  drafts  of  this  type  are  always  in  demand  and  can 
be  sold  by  American  merchants  at  better  rates  than  time  bills 
of  exchange  on  the  Norse  nations. 


When  Exchange  Paid  by  Drawees.  173 

The  conditions  with  respect  to  sight  and  three- day  bills, 
however,  are  quite  different  since  the  element  of  time  credit, 
interest,  does  not  enter  into  the  transaction  at  all,  and  bills 
of  exchange  of  this  type  are  usually  drawn  upon  the  Scan- 
dinavian merchants,  or  their  local  bankers,  direct,  payable  in 
kroner,  pounds  Sterling,  or  marks.  Bills  drawn  upon  Den- 
mark, Sweden,  and  Norway,  in  foreign  moneys,  usually  read 
"Payable  at  the  rate  of  exchange  for  bankers'  checks  on 
London,"  or,  "Payable  at  the  rate  of  exchange  for  bankers' 
checks  on  Hamburg  or  Berlin,"  with  the  result  that  the 
exchange  must  be  paid  by  drawees  of  respective  drafts. 

Such  drafts  may  of  course  be  remitted  by  the  American 
bank  to  its  correspondents  in  Denmark,  Norway,  and  Sweden 
for  credit;  but  in  all  cases  the  American  banker  will  do  well 
to  merely  forward  these  drafts  to  his  Scandinavian  bankers 
for  collection  and  remittance  of  proceeds  to  his  London 
correspondents  when  drawn  in  pounds.  Sterling,  and  to  his 
Hamburg  or  Berlin  associates  when  drawn  in  marks,  and  in 
so  doing  avoid  loss  of  exchange  by  virtue  of  conversion  that 
would  be  incurred  were  the  proceeds  converted  and  credited 
in  kroner  on  the  books  of  account  of  the  banking-house  in 
Denmark,  Norway,  or  Sweden.  In  other  words,  the  credit 
balance  required  for  checking  purposes  should,  when  possible, 
always  be  created  by  remittance  of  bills,  drawn  in  kroner. 

The  indirect  exports  of  American  products  shipped  to  the 
Norsemen,  principally  through  the  intermediate  agency  of 
Germany,  are  still  large;  by  no  means  do  such  circuitous 
shipments  represent  the  figures  of  former  years,  since  the 
direct  commerce  between  the  United  States  and  the  respective 
kingdoms  of  Denmark,  Norway,  and  Sweden  is  increasing 
year  by  year. 

Branch  banking  is  at  home  in  all  of  the  Norselands,  and 
business  relations  formed  between  an  American  banking 
institution  and  a  prominent  banker  in  the  cities  of 


174  International  Exchange. 

Copenhagen  in  Denmark, 

Christiania  in  Norway,  and 

Stockholm  in  Sweden, 
will  provide  the  American  bank  with  correspondents  in  all 
of  the  smaller  cities  therein  on  whom  checks  could  be  issued 
and  bills  remitted  to  for  account  of  the  parent   institution 
for  credit  of  the  American  bank. 

When  the  American  correspondent  in  these  centres  has  not 
its  own  branches  in  the  smaller  towns,  the  names  of  corre- 
spondents there  will  be  furnished  with  whom  the  same 
relations  may  be  established  in  like  manner  as  with  the 
branch  agencies,  subject  to  the  usual  small  extra  commission. 

The  three  principal  cities,  previously  named,  will  be  found 
quite  adequate  for  all  practical  purposes  and  requirements, 
and  business  ties  with  bankers  in  these  Norse  cities  may  be 
opened  on  these  terms  and  conditions,  to- wit: 

Account  current  commission,         .         -         .         /^VooJ 
Commission  charged  for  collecting  drafts 

payable  in   Sterling  and /or  marks, 

and  remitting  proceeds,  .  .  _     ^7oo> 

Interest  allowed  on  credit  balances,  {  According  to  the 
Interest  charged  on  debit  balances,  (  monetary  conditions; 
Three  days'  sight  and  other  time  bills  of 

exchange  are  subject  to  bill  stamp 

duties  of,  approximately,         _         _         _         /^%o> 
Transit  drafts  and  checks  are  exempt 

from  stamp    duty,    or  the  amount 

thereof  is  so  small  as  to   be  practi- 
cally exempt; 
Postage,  cablegrams,  and  divers  expenses  charged  to  the 

account. 
Conceding  that  the  American  bank  has  opened  an  account 
on  the  foregoing  terms  and  conditions,  the  prices  to  be  paid 
for  the  different  types  of  bills  of  exchange  follow : 


Bills  Payable  in  Sterling,  Marks,  or  Kroner.  175 

Bills  on  Scandinavian  countries  payable  in  Sterling  and  /  or 
marks  will  be  considered  first,  since  these  bills  are  offered 
more  frequently  than  drafts  payable  in  kroner. 

Sterling  bills  of  this  class  drawn  at  sight,  or  three  days* 
sight,  are  subject  to  the  following  charges : 

Basis  of  calculation,  ^100 =$486. 

Charges  for  collecting  draft  and  remitting  dollars. 

proceeds  to  London,         _         -        -        /^Voo»     '^4 
Loss    of  interest  occasioned    by   time 

consumed  from  and  to  London  and 

the    Scandinavian  countries,  about 

six  days,  say,  at  3%,         -         -         -        >^7oo»     M 
Postage,  bill  stamps,  and  possible  loss  in 

decline  in  exchange  during  transit,      -     /^%o»     -^4 

Total  charges,         -        -         -         -  .72 

or,  approximately,  ^  cent  per  pound,  Sterling,  so  that  the 
American  banker  should  pay  about  ^  cent  per  pound, 
Sterling,  less  for  a  sight  Sterling  bill  drawn  on  a  Scandinavian 
country  than  for  a  sight  draft  drawn  direct  upon  London. 
The  usual  difference,  however,  in  course  of  business  trans- 
actions is  one  cent  per  pound,  Sterling,  including  the  loss  of 
three  days'  interest,  were  the  draft,  on  Scandinavia,  in  Sterling 
drawn  at  three  .days'  sight. 

For  drafts  drawn  at  sight,  or  three  days'  sight,  upon 
Scandinavian  countries  payable  in  marks,  1/8  per  cent,  less 
is  usually  paid  than  for  three  days'  sight  drafts  on  Germany, 
owing  to  the  subsequent  charges  amounting  to,  approxi- 
mately, }i  per  cent: 

Basis  of  calculation,  400  marks =$94. 

Charges  for  collecting  draft  and  remitting  dollars. 

proceeds  to  Germany,         .         _         _      ^7oo»     -^5 
Loss  of  interest  during  transit,  postage, 

bill   stamp,    and    possible    loss    in 

decline  in  exchange  during  transit,  -  .075 

Total  charges,  -         -        _         i^%,  or.125 


1/6        International  Exchange. 

Long  time  bills  of  exchange,  that  is  to  say,  drafts  drawn 
at  thirty -day,  sixty -day  and  ninety- day  sight,  on  the  Scan- 
dinavian kingdoms,  payable  in  pounds,  Sterling,  or  marks, 
are  not  issued  frequently;  and  these  bills,  by  reason  of  the 
fact  of  not  being  discountable,  are  undesirable.  Further,  the 
drawees  refuse  to  accept  such  bills  at  a  specified  rate  of 
exchange,  because  payable  at  the  rate  of  exchange  obtaining 
on  date  of  maturity.  When  the  American  bank  is  obliged 
to  purchase  drafts  of  this  type,  the  interest  should  be 
deducted  at,  say,  five  per  cent,  per  annum  for  the  time 
represented  by  the  tenor  of  the  paper,  deducting  also  about 
%  per  cent,  from  the  current  rate  of  exchange,  to  protect  its 
interests  against  possible  loss  in  exchange  from  date  of 
purchase  to  date  of  maturity. 

Illustration  follows  showing  purchase  of  bills  of  exchange 
on  Scandinavian  countries,  drawn  in  kroner: 

What  price  to  pay  for  a  sight  draft  on  Copenhagen,  Chris- 

tiania,  or  Stockholm: 

Example. 

Basis  of  calculation,  lOO  kroner=$27. 
Selling  price  of  bankers'  checks  in  New 

York,  267/i  cents  per  krone;*  dollars. 

Commission  charged  in  account,     -         -     ^%o>     -O'SS 
Margin  of  profit  for  American  banker,        %%,       .0337 

•0472 
deducted  from  the  selling  price  for  checks,  viz:  .26875,  gives 
the  approximate  rate  of  26  13/16  cents  per  krone,  the   price 
to  pay  for  above  draft. 

To  determine  the  several  purchase  prices  for  time  drafts 
drawn  in  kroner,  proceed  to  ascertain  their  respective  values 
in  the  same  manner  as  other  foreign  bills  of  exchange, 
deducting  charges  for  bill  stamps,  commission,  profit,  and 
interest  for  time,  according  to  tenor  of  respective  drafts  at 
obtaining  rates  of  interest  in  respective  country  whereon  the 
draft  is  drawn. 

*  Danish  k  Swedish  krona,  and  Norwegian  kruna. 


Russo  -  American  Banking.  177 

Russia. 

The  geographical  proximity  between  the  seashores  of  the 
Russian  Empire  in  Asia  and  the  Republic  of  the  United 
States  of  America  reveals  physically  what  is  true  of  the 
Russo- American  political  relations,  a  close  and  personal 
national  friendship. 

In  strange  contrast  thereto  are  the  long-distance,  that  is 
to  say,  the  indirect  financial  inter-relations  of  Muscovite  and 
American  banking  institutions — the  anomaly  in  international 
exchange. 

Russia,  preeminent  among  the  nations  of  the  world,  and 
whose  political  power  is  universally  respected,  has  practically 
no  direct  ties  with  the  American  banking  associations,  and 
few,  if  any,  American  banks  carry  accounts  on  the  commer- 
cial books  of  Russian  bankers. 

The  direct  exports  of  American  products  to  Russia  are  of 
such  insignificant  proportions,  that  the  tender  for  negotiation 
to  a  Chicago  banker  of  a  bill  of  exchange  drawn  there  in  its 
monetary  unit,  the  ruble,  with  its  100  copecks,  would  be 
looked  upon  as  a  curiosity.  The  small  volume  of  goods 
consigned  direct  to  Russian  merchants  are  usually  paid  for 
by  bills  drawn  in  pounds.  Sterling,  accepted  payable  in 
London. 

The  indirect  exports  of  American  goods  to  Russia  are, 
however,  quite  important,  and  England  and  especially  Ger- 
many freely  distribute  American  commodities  among  the 
Slav  people. 

American  exporters  are  averse  to  selling  their  wares  direct 
to  Russian  merchants  upon  their  customary  terms  of  pur- 
chase; while  the  English  and  German  tradesmen  are  willing 
12 


178  International  Exchange. 

to  grant  the  old  established  basis  of  long  time  credits.  It  is 
not  uncommon,  for  instance,  that  German  merchants  sell 
their  merchandise  on  a  credit  basis  of  from  six  to  twelve 
months'  time. 

The  chief  reason  why  American  exporters  have  been 
unsuccessful  in  invading  the  South  American  countries,  is 
the  extended  and  protracted  credit  embraced  in  the  Spanish- 
American  contract  of  sale. 

The  custom  of  long  time  credit  allowed  to  foreign 
merchants  by  the  German  tradesmen  is  quite  in  accord  with 
conditions  obtaining  in  parts  of  the  German  Empire  even  at 
the  present  day,  and,  by  way  of  example,  physicians  and 
merchant  tailors  frequently  adhere  to  the  old  practice  of 
rendering  bills  for  services,  and  merchandise  sold  and  deliv- 
ered, annually  or  semi-annually. 

The  international  relations  between  Russia  and  Germany 
are  very  close,  and,  as  a  result,  Teutonic  banking  institutions 
have  correspondents  throughout  the  Russian  territory;  and 
the  names  of  the  several  correspondents  in  Russia  are 
furnished  by  the  German  banker  to  enable  the  American 
bank  to  issue  its  own  drafts  in  rubles  upon  the  banking  firms 
in  Russia. 

All  drafts  issued  by  the  American  banking-house  should 
be  advised  simultaneously  to  the  drawees  and  to  the  German 
correspondent  on  whose  account  the  Russian  bankers  will 
honor  the  American  checks. 

Such  drafts  will  be  debited  to  the  account  of  the  American 
bank  by  the  German  correspondent  on  date  of  receipt  of 
appertaining  advice  at  the  current  rate  of  exchange. 


Drafts  on  Russia.  179 

The  following  example  is  presented  to  ascertain  the  price 
the  American  bank  can  afford  to  sell  its  sight  drafts,  checks, 
on  Russia,  assuming  that  the  quotation  for  bankers'  checks 
on  Russia  in  Germany  is  2.16%,  such  rate  expressing  the 
cost  of  one  ruble,  viz:  2.1625  marks  in  Germany,  conceding 
also  that  checks  in  America  on  Germany  are  worth  955^, 
or,  23^  cents  per  mark,  and  allowing  further  for  commis- 
sion and  postage  charged  by  the  German  correspondents 
for  protecting  such  drafts. 

Example. 
Basis  of  calculation,  100  rubles. 
Check  on  Russia  for  rubles,  100. 
Minimum  commission  and 

postage    charged    by 

German  banker,         -         .50 


Rubles,       -         -       loo.soat  2.16^=217.35 

If  one  mark  is  worth  23^  cents  in  America,  217.35 
marks  will  be  worth  $51.90,  the  cost  of  the  American 
banker's  check  on  Russia  for  100  rubles,  or,  51  9/10  cents 
per  ruble.  This  price  represents  the  cost  to  the  American 
banker,  and  thereto  must  be  added  whatever  margin  the 
American  bank  desires  for  its  profit. 

Checks  on  Russia  are  almost  invariably  issued  in  small 
amounts;  the  ordinary  commission  exacted  by  the  German 
correspondent  for  protecting  checks  is  50  copecks,  or  j4  ruble, 
including  postage. 


Chapter  XXI. 


* 


DOCUMENTARY    ACCEPTANCE      BILLS    AND 

COLLATERAL,  LETTERS  OF  DELEGATION 

AND    BANKERS'  CHECKS,    WITH 

GENERAL   INSTRUCTIONS 

FOR  THEIR  ISSUE. 

CHAPTER  IV  was  devoted  to  a  general  description  of 
documentary  bills,  documents  on  payment,  and  apper- 
taining documents,  with  general  instructions  for  their  issue, 
with  presentation  of  specimens  of  a  documentary  payment 
bill  and  a  general  hypothecation  power,  and  disclosure  of  the 
collateral  thereto,  to- wit:  Bills  of  Lading,  Certificates  of 
Marine  Insurance,  Shippers'  Invoice,  and  Inspection,  Weight, 
and  Consular  Certificates,  with  copious  suggestions  as  to  their 
execution. 

The  subjects  of  Documentary  Acceptance  Bills,  Bankers' 
Checks,  and  Letters  of  Delegation,  having  to  do  with  the 
English,  German,  French,  Dutch,  and  other  foreign  banking 
correspondents  of  American  banking  institutions,  more  appro- 
priately follow,  to  a  better  understanding  of  such  commercial 
paper,  after  exposition,  respectively,  of  the  Accounts,  known 
as  the  English,  French,  German,  Dutch,  and  other  trans - 
Atlantic  banking  depositaries  of  and  clearing-houses  for 
American  banks;  of  course  Documentary  Acceptance  Bills 
may  be  drawn  on  persons  other  than  bankers. 

Documentary  Acceptance  Bills. 

The  various  documents  constituting  a  complete  Document- 
ary Bill  of  Exchange,  Documents  on  Payment,  were  described 
at  length  in  Chapter  IV,  entitled  "Descriptions  of  Bills  and 
Collateral,"  and  explanation  will  now  follow  of  a  Documentary 

*  Conclusion  of  Chapter  IV. 

1 80 


Shipping  Documents.  i8i 

Bill  of  Exchange,  Documents  on  Acceptance;  and  such  Accept- 
ance Bill  in  all  respects  is  similar  to  a  Documentary  Payment 
Bill  except  that  the  documents  are  surrendered  on  acceptance 
instead  of  on  payment,  as  will  be  observed  from  the  following 
submitted  specimen: 


Form  of  Acceptance  Bill. 

Exhibit  I. 

Documents  to  be  Surrendered  on  Banker's  Acceptance. 

2 

J  Exchange  for  CHICAGO,  Illinois, ,  19 

to 

I  £ 

i                  At  ninety  days'  Sight  of  this  First  of  Exchange, 
.  Second  unpaid,  pay  to  the  order  of 


— ,  Sterling. 

0  Value  received  and  charge  the  same  to  the  account  of 
&  Swift  &  Co., 

ctf 

1  To  by 

I  Dresdner  Bank, 

o 

S>  London,  England. 

I  No 


Drafts  of  this  type  are  accompanied  by  shipping  documents 
having  precisely  the  same  character  as  Documentary  Payment 
Bills,  and  such  shipping  documents  were  presented  in  the 
preceding  pages  of  this  Chapter. 


i82        International  Exchange. 

The  left  hand  margin  of  the  draft  has  the  words  following: 
«*In  cr.se  of  need,  apply  to  Mr.  F.  W.  Green,  Christiania ; " 
such  note  was  thereon  inscribed  by  the  drawers  for  this 
reason:  Mr.  F.  W.  Green  is  the  Scandinavian  agent  for  the 
exporters,  Messrs.  Swift  &  Co.  of  Chicago,  and  the  merchan- 
dise covered  by  the  attached  documents  was  sold  by  him  to 
some  merchant  in  the  Scandinavian  countries,  who,  in  turn, 
has  opened  a  credit  through  his  local  banker  with  the 
Dresdner  Bank  of  London,  the  drawee  of  the  draft,  since  bills 
on  London  can  be  sold  by  the  exporters  to  better  advantage 
than  drafts  on  Scandinavian  cities,  and  payment  for  goods  in 
this  manner  was  a  condition  of  the  sale. 

If  for  any  reason,  then,  the  drawee  refuses  to  accept  the 
draft  upon  presentation,  the  draft  is  immediately  referred  by 
the  holder  to  Mr.  F.  W.  Green,  Christiania,  who  will  arrange 
for  its  prompt  protection  in  behalf  of  the  drawers,  thereby 
avoiding  all  incidental  expenses,  such  as  protest  fees, 
telegraphic  expenses,  loss  of  interest,  etc. 

All  documentary  bills  of  exchange  on  Germany,  except 
Letters  of  Delegation  with  documents  attached,  are  subject 
to  the  German  bill  stamp  duty  of  one- half  per  mille;  and  such 
Letters  of  Delegation  prove  the  exception  and  are  exempt 
from  such  stamp  duty. 

Letters  of  Delegation. 

To  save  the  expense  incident  to  the  German  stamp  duty, 
exporters,  frequently,  instead  of  issuing  sight,  or  three- day 
sight  drafts,  on  their  German  customers,  instruct  their  buyers 
to  pay  the  value  of  the  amount  of  their  purchases  to  the 
German  correspondent  of  the  American  banker  to  whom  the 
Letter  of  Delegation  was  sold  by  the  exporter. 


Appertaining  Documents.  183 

This  form  of  exchange  is  quite  extensively  sold,  and  a 
specimen  form  of  a  Letter  of  Delegation  is  in  consequence 
annexed : 

Specimen  Letter  of  Delegation. 

Exhibit  IL 
Armour  &  Co.  No 

CHICAGO. 

Foreign  Department. 

Chicago,  Illinois, ,  190 — 

To  Atlas  National  Bank, 

Chicago. 
To  the  Cashier: — 

We  beg  to  inform  you  that  Messrs.  Tietgens  &  Robinson 

of  Hamburg,  Germany,  will  deposit  M 

say Marks,  for  your  account  with  Filiale  der 

Dresdner  Bank,  Hamburg,  on  presentation  of  this  Letter  of 

Delegation, 

shipped  to ,  viz: 


Yours  very  truly, 

Armour  &  Co., 
by 


Letters  of  Delegation  are  usually  accompanied  only  by 
bills  of  lading,  to  be  delivered  on  payment  of  the  amount 
instructed  by  drawers  to  pay  the  German  banker  named 
therein,  but  sometimes  also  have  attached  other  shipping 
documents  usual  to  other  documentary  drafts. 

The  analysis  of  documentary  bills  of  exchange  issued  by 
exporters  has  been  concluded,  and  discussion  follows  of 
checks  issued  by  American  bankers  upon  their  European 
correspondents. 


i84  International  Exchange. 

Bankers'  Checks. 

Bankers'  Checks  are  sold,  either  to  their  customers  over  the 
counter  by  the  bank  of  issue,  the  drawer,  or  to  other  bankers 
direct,  or  indirectly  through  foreign  exchange  brokers. 

A  demand  draft  on  London,  commonly  called  a  Banker's 
London  Check,  is  herewith  submitted; 


Banker's  London  Check. 

Exhibit  L 
Origmal. 

Atlas  National  Bank, 

£ Chicago,  Illinois, ,  19 

On  demand,  pay  to  the  order  of 

_,  Duplicate  unpaid, 

,  Sterling. 

Value  received  and  charge  to  account  of 

Atlas  National  Bank, 

by 


The  City  of  London  Bank,  Limited, 

London. 

No 


German  Stamp  Tax.  185 


Banker's  German  Check. 

A  specimen  of  a  Banker's  German  Check  is  affixed,  and 
especial  attention  is  called  to  this  clause  thereon:  "Pay 
against  this  Check  from  balance  due  us." 

This  form  of  check  is  essential  to  be  exempt  from  the 
stamp  tax  under  the  German  banking  laws,  drafts  drawn  in 
any  other  form  of  verbiage  are  subject  to  one- half  per  mille, 
bill  stamp  tax,  while  the  following  specimen  is  permitted  to 
be  used  free  from  such  tax: 


Original. 


No.. 


Exhibit  II. 
Atlas  National  Bank. 


M Chicago,  Illinois, ,  19 

Pay  against  this  Check  from  balance  due  us  to 

,  or   order, 

- Marks. 

Atlas  National  Bank, 

by . 

To  Filiale  der  Dresdner  Bank, 
Hamburg. 


iS6  International  Exchange. 

Banker's  Paris  Check 

The  forms  for  Bankers'  Paris  Checks  are  generally  furnished 
by  the  Paris  correspondent,  and  are  printed  in  the  French 
language. 

It  is  advisable  to  fill  up  the  body  of  these  Checks  in  the 
French  language  for  uniformity,  although  it  is  not  necessary 
to  do  so. 

It  is,  however,  important  that  the  date  of  all  French  Checks 
be  written  out  in  letters  instead  of  figures,  for  otherwise  such 
Checks  will  be  subject  to  the  bill  stamp  tax  of  one-half  per 
mille.  Attention  is  called  to  this  method  of  dating  checks, 
as  will  be  seen  from  the  following  specimen  on  the  face 
whereof  appears  the  following  phrase : 

Dater  en  Toutes  Lettres. 
Exhibit  III. 


Original. 


Dater  en  Toutes  Lettres. 

Chicago,  Illinois, ,  19 , 

Credit  Lyonnais, 
Paris. 


Payez  a  I'ordre  de 

la  somme  de 


No Atlas  National  Bank, 

by 

19  Boulevard  des  Italiens, 


Caisse  ouverte  de9H-res  a  4H-'res. 


Bills  Issued  in  Two  Parts.  187 

A  General  Specimen  of  Banker's  Check. 

A  general  form  of  Banker's  Check  is  the  blank  form  of 
Check  available  for  issuing  Checks  on  any  country,  irrespect- 
ive of  the  monetary  unit. 

The  subjoined  specimen  of  Check  is  merely  a  blank  Check, 

thereby  permitting  its  use  in  issuing  Checks  for  rubles  on 
Russia,  kroner  on  Norway,  Denmark  and  Sweden,  francs  on 
Belgium  and  Switzerland,  crowns  on  Austria,  etc.,  and  the 
name  of  the  drawee  and  the  money  of  the  country  can  be 
inserted  according  to  requirements. 

Exhibit  IV. 

Original. 

ATLAS   NATIONAL  BANK. 

No 

Chicago,  Illinois, ,  19 

Pay  against  this  Check  from  balance  due  us  to 

^ ,  or   order. 

Atlas  National  Bank, 
To by 


All  documentary  foreign  bills  of  exchange  and  bankers' 
foreign  Checks,  for  large  amounts,  are  issued  in  two  parts, 
and  are  called,  "First  of  Exchange,  or  Original,"  and  "Second 
of  Exchange,  or  Duplicate^"  and,  in  the  event  of  the  payment 
by  the  drawee  of  either  the  Original  or  Duplicate,  the 
remaining  part  becomes  null  and  void. 


Chapter  XXII. 

BANK  POST  REMITTANCES— DEL  CREDERE. 

BANK  Post  Remittances  provide  a  system  whereby  money 
is  remitted  direct  to  the  residence  of  the  beneficiary  by 
mail,  and  offers  special  advantages  to  persons  residing  in 
small  European  cities  where  more  or  less  difficulty  would  be 
encountered  in  negotiating  bankers'  drafts  or  checks,  owing 
to  the  lack  of  banking  facilities. 

The  method  employed  is  very  simple.  All  that  is  required 
of  the  American  banker  to  effect  Bank  Post  Remittances  is: 
to  obtain  the  full  name  and  complete  address  of  the  person 
to  whom  the  money  is  to  be  remitted,  and  forward  a  copy 
thereof  to  his  banking  correspondent  in  the  respective  country, 
and  to  request  such  foreign  correspondent  to  execute  the 
remittance  to  the  debit  of  the  account  of  the  American  bank. 

The  European  governments  accept  remittances  of  money 
through  postal  service,  guaranteeing  the  delivery  to  addressees, 
exacting  a  small  fee  for  their  services  in  so  doing. 

Bank  Post  Remittances,  intended  for  beneficiaries  domi- 
ciled in  Russia  and  made  payable  in  rubles,  are  generally 
effected  through  the  office  of  the  Hamburg,  or  Berlin,  corre- 
spondent of  the  American  bank,  and  the  amounts  thereof  are 
debited  in  the  account  at  the  current  rate  of  exchange,  plus 
postage  and  commission. 

It  is  advisable,  owing  to  the  peculiarity — characteristic  of 
Russian  names,  that  both  the  given  and  surnames  of  the 
beneficiaries  and  their  addresses  in  Russia  should  be  written 
by  the  applicants  themselves. 

Two  forms  for  Bank  Post  Remittances  follow: 

i88 


Form  of  Receipt.  189 

Bank  Post  Remittance. 

Blank  to  be  filled  in  and  forwarded  to  the  banker  abroad, 
ith  request  to  execute  the  Remittance: 

Exhibit  I. 

BANK   POST   REMITTANCE. 


No. 


-,  19 


At  the  request  of_ 
Residing:   at 


Please  forward  to. 
Residincr   at  


The  amount  of  (foreign  money) 

At  rate ,  $ Postage,  15  cents,  Total,  $. 

Atlas  National  Bank. 

Form  of  Receipt  to  be  given  to  the  Sender: 
Exhibit  II. 

BANK   post   remittance. 

No 


.,  19- 


Received  from. 


For  Remittance  to 


Amount  in  foreign  money, 

Amount  in  United  States  Currency,. 


(Signature  of  Bank's  Officer.) 


DEL   CREDERE. 

DEL  Credere  is  a  term  applied  to  a  custom  in  vogue  among 
European  bankers  of  charging  a  commission  for 
guaranteeing  the  payment  of  a  time  bill  of  exchange  at 
maturity. 

The  commission  contracted  for  in  Del  Credere  transactions 
amounts  to  practically  the  same  compensation  as  the 
premium  charged  by  a  fire  insurance  company  on  its  policies, 
differing  only  in  the  nature  of  the  protection  afforded. 

Del  Credere  is  a  protection  against  a  possible  loss  that 
may  be  sustained  by  the  non-payment  of  a  draft  or  bill  of 
exchange,  while  a  premium  paid  to  a  fire  insurance  company 
protects  against  loss  by  fire. 

The  rate  of  commission  exacted  by  bankers  for  securing 
Del  Credere  ranges  from  one-fortieth  to  one  and  one-half  per 
cent,  of  the  face  amount  of  the  draft,  according  to  the  life  of 
the  draft  and  the  financial  responsibility  of  the  respective 
drawee  or  acceptor.  If  no  collateral  security  underlies  the 
Del  Credere  agreement,  the  banker  furnishing  the  guarantee 
of  payment  (Del  Credere)  has  as  his  sole  protection  against 
possible  loss  by  virtue  of  non-payment  of  draft,  the  financial 
liability  of  the  drawee  or  acceptor.  Since  the  very  object  for 
securing  Del  Credere  is  to  release  the  drawer  and  endorser, 
if  any,  from  any  liability  in  the  event  of  dishonor  at  maturity, 
recourse  with  respect  to  drawer  and  endorser,  if  any,  is  waived. 

The  foreign  exchange  bankers  in  this  Country  are  called 
upon  quite  frequently  to  secure  Del  Credere  through  their 
European  bankers  on  behalf  of  their  clients.     To  illustrate: 

A  merchant  in  Antwerp  desires  to  purchase  merchandise 
from  an  exporter  in  Chicago,  upon  a  cash  basis  of,  say,  sixty 
days'  time  from  the  date  of  acceptance  of  the  respective  draft, 

190 


Del  Credere  Unknown  in  America.  191 

and  to  conform  thereto  would  necessitate  the  surrender  of 
documents  covering  relative  shipment  upon  drawee's  accept- 
ance of  draft. 

Although  the  financial  standing  of  the  Antwerp  merchant, 
the  drawee,  is  first  class,  prior  sales,  upon  a  similar  basis  of 
reimbursement,  may  have  been  consummated  to  such  an 
extent,  as  to  deter  the  Chicago  merchant,  or  his  banker,  from 
incurring  the  additional  risk  involved. 

To  refuse  to  execute  the  order  upon  the  terms  and  condi- 
tions stipulated  by  the  Antwerp  merchant  might  offend  him 
and  result  in  the  loss  of  a  valuable  customer.  Rather  than 
run  this  risk,  the  Chicago  exporter  prefers  to  reduce  his  profit 
on  the  transaction,  to  the  extent  of  commission  to  be  charged 
for  securing  Del  Credere,  and  the  cost  thereof  will  be  ascer- 
tained by  telegraphic  inquiry  by  the  Chicago  banker  from  his 
Antwerp  banking  correspondent. 

Del  Credere  contracts  are  practically  unknown  to  the 
American  banking  fraternity.  The  exceptive  case  in  use  in 
this  Country  approaching  in  similitude  to  the  Del  Credere  is 
that  of  charging  a  commission  for  the  conversion  of  a  single 
named  bill  into  a  double  named  bill  by  furnishing  an  accept- 
able endorsement  to  the  single  named  bill  as  explained  in 
Chapter  IV,  page  47. 


Chapter  XXIII. 

GENERAL  INSTRUCTIONS  COVERING 

THE  CONDUCT  OF 

THE  FOREIGN  ACCOUNTS. 

TH  E  management  of  the  several  foreign  accounts  and  the 
actual  administration  of  international  exchanges 
between  the  American  banker  and  his  European  correspond- 
ents were  fully  outlined  in  the  preceding  Chapters  entitled : 
The  English  Account,  The  German  Account,  The  French 
Account,  Holland,  Belgium,  and  sundry  Accounts. 

The  details  especially  applicable  to  each  of  these  accounts 
were  presented  under  the  respective  titles  aforesaid. 

The  object  of  the  present  Chapter  will  be  to  present  general 
suggestions  pertaining  to  all  of  the  leading  European  accounts. 

Remittances. 

All  bills  of  exchange  remitted  for  credit  should  be  signed 
and  endorsed  in  writing.  When  drawn  or  endorsed  by  a 
corporation,  the  signer  or  endorser  should  add  his  official 
capacity  to  his  signature. 

The  body  of  the  drafts  for  the  amount  in  letters  should 
correspond  with  the  amount  as  expressed  in  figures. 

The  documents  pertaining  to  documentary  bills  of  exchange 
should  be  carefully  examined.  Bills  of  lading  and  insurance 
certificates  should  be  properly  signed  and  endorsed,  and 
consular  certificates,  if  any,  weight  certificates,  certificates  of 
origin,  etc.,  should  be  signed  by  an  authorized  person. 

The  merchandise  covered  by  drafts,  as  expressed  in  the  bill 
of  lading,  should  correspond  with  the  description  as  given  in 

192 


Care  in  Preparation  of  Drafts.  195 

the  remaining  relative  documents.  The  amount  of  insurance, 
as  represented  by  the  certificate  of  insurance  attached  to 
draft,  when  insured  by  drawer,  should  approximately  equal 
the  face  amount  of  the  draft. 

A  discrepancy  in  the  draft,  or  in  any  of  its  constituent 
documents,  should  be  rectified  by  the  drawer,  to  insure  the 
prompt  protection  of  the  respective  draft  by  the  drawee.  An 
omission  or  oversight  so  to  do  will  doubtless  result  in  dishonor 
of  the  draft  and  will  incur  incidental  expenses  for  cablegrams, 
protest  fees,  etc.  The  non-acceptance  or  non-payment  of 
any  bill  of  exchange,  remitted  for  credit  abroad,  should  be 
immediately  reported  to  the  forwarding  bank  by  its  foreign 
correspondent  to  whom  the  bill  was  remitted,  by  cablegram, 
and  standing  instructions  to  this  effect  should  be  given  to  all 
the  foreign  correspondents  of  the  American  bank  at  the  time 
business  relations  with  them  are  inaugurated. 

All  information  of  this  nature,  received  by  the  American 
bank,  should  be  immediately  reported  to  the  drawers  and  /  or 
endorsers  of  the  respective  bill.  When  these  parties  are 
located  out  of  town,  the  information  should  be  communicated 
to  them  by  telegraph.  The  amount  paid,  together  with  loss 
of  exchange,  protest  fees,  interest,  commission,  etc.,  will  be 
demanded  by  the  American  banker  from  the  drawers,  or 
endorsers,  if  any,  of  dishonored  bills  of  exchange,  at  the  time 
of  the  notification  to  this  effect,  and  if  the  bills  are  subse- 
quently adjusted  by  the  drawee,  or  acceptor,  the  amount,  less 
expenses,  will  of  course  be  refunded  to  drawers,  or  endorsers, 
if  any. 

Where  there  is  no  direct  connection  with  a  correspondent 
at  the  city  upon  which  the  bill  is  drawn,  the  bill  should  be 
remitted  to  the  nearest  point  to  that  city  wherein  the  American 
bank  has  a  correspondent.  This  is  very  essential  and  should 
not  be  lost  sight  of,  otherwise,  The  Foreign  Department  of  the 
American  bank  might  sustain  serious  loss.  To  explain: 
13 


194  International  Exchange. 

Some  years  ago,  a  banker  purchased  a  draft  on  Dublin, 
Ireland.  Although  he  had  an  active  correspondent  there 
remittance  for  collection  and  credit  was  made  to  his  London 
correspondents.  The  reason  for  so  doing  was  that  his  balance 
in  Dublin  was  ample  for  his  requirements,  whereas  his  English 
account  was  short  of  funds  and  such  remittance  of  the  draft 
in  question  would  replenish  his  London  account  to  the  extent 
'of  the  Dublin  draft.  During  the  transit  of  the  draft  from 
London  to  Dublin,  the  drawer  of  the  draft  failed,  and  the 
result  was  that  the  draft  was  naturally  protested  for  non- 
payment. 

In  due  course,  the  American  banker  endeavored  to  collect 
from  the  seller,  the  endorser  of  the  draft,  the  amount  thereof 
by  him  originally  paid;  his  demand  was  ignored,  on  the 
grounds,  that  had  the  American  banker  remitted  the  draft 
direct  to  his  Dublin  correspondent,  to  insure  presentation  at  the 
earliest  moment,  instead  of  collecting  in  a  circuitous  method, 
via  London,  the  draft  would  doubtless  have  been  paid,  since  it 
was  proven  that  the  drawer  had  met  all  obligations  up  to  the 
day  of  the  failure,  that  occurred,  as  previously  stated,  during 
the  passage  of  the  draft  from  London  to  Dublin. 

The  banker  recognized  the  equity  in  the  issue  raised  by  his 
client,  relinquished  his  demand,  and  stood  the  loss. 

Especial  care  should  be  exercised  by  the  American  banker 
in  giving  instructions  to  his  foreign  correspondents,  with 
respect  to  the  delivery  of  documents  attached  to  all  docu- 
mentary bills  of  exchange.  When  the  bills  are  drawn  upon 
banks  or  bankers,  the  documents  are  in  all  cases  surrendered 
to  the  drawees  against  their  acceptance,  otherwise  the  banker 
would  consider  such  action,  to  say  the  least,  indelicate  were 
the  documents  not  delivered  to  him  on  his  acceptance,  because 
thereby  reflection  might  be  construed  not  unjustly,  by  him, 
against  his  integrity  and  financial  responsibility.  Acceptance 
would,  certainly,  be  refused  by  him  on  any  other  conditions. 


I 


ii. 


Written  Instructions.  195 

The  instructions,  covering  delivery  of  documents  attached 
to  documentary  bills  drawn  upon  merchants,  should  be  given 
in  accordance  with  the  wishes  of  the  drawers.  Where  the 
drawers  are  not  financially  strong,  and  their  bills  are  drawn 
upon  merchants  known  by  the  American  banker  to  be  weak, 
with  instructions  to  surrender  documents  on  acceptance,  The 
Foreign  Department  of  the  American  bank  should  refuse  to 
purchase  their  bills,  owing  to  the  risk  of  loss  involved. 

Unless  the  instructions  covering  the  delivery  of  documents 
are  stamped  by  the  drawers  upon  the  face  of  all  document- 
ary bills  of  exchange,  of  every  description,  written  instructions 
should  be  demanded  from  the  drawers,  and  carefully  preserved 
by  the  American  banker  to  guard  against  the  possibility  of  a 
dispute  or  misunderstanding  arising,  in  the  event  of  the  fail- 
ure of  the  drawee  to  whom  the  documents  may  have  been 
surrendered  on  acceptance.  The  importance  of  the  sugges- 
tion will  be  readily  perceived. 

These  general  instructions  having  been  completed  with 
respect  to  remittances  constituting  the  credit  side  of  the 
American  accounts  conducted  with  European  correspondents, 
attention  will  now  be  directed  to  the  items  on  the  debit  side 
of  the  foreign  ledgers. 

Drafts. 

All  valuations  upon  American  foreign  correspondents, 
whether  drawn  at  sight,  or  at  thirty,  sixty,  or  ninety  days' 
sight,  should  be  promptly  advised  on  date  of  issue  and 
forwarded  by  the  first  outgoing  mail.  Sight  drafts,  or  checks, 
will  be  charged  to  the  American  account  upon  receipt  of 
appertaining  advices  from  the  American  banker  by  his 
European  friends,  with  the  exception  of  checks  on  London 
debited  to  the  American  account  upon  actual  payment,  unless 
arrangements  to  the  contrary  have  been  agreed  to.  Time 
drafts  will  be  charged  to  acceptance  account  upon  acceptance, 


196  International  Exchange, 

and  transferred  to  the  debit  of  the  American  check  or  current 
account,  at  maturity.  Time  drafts  drawn  under  American 
Commercial  Letters  of  Credit  will  be  treated  in  like  manner. 
Inasmuch  as  the  acceptance  obligates  the  acceptor  to  pay  at 
maturity,  all  items  to  debit  of  the  American  bank,  under  the 
acceptance  account,  should  be  covered  by  documentary  bills 
of  exchange,  cash  funds,  or  satisfactory  security,  to  be  held 
by  the  acceptor  from  date  of  his  acceptance  to  maturity, 
unless  the  drafts  have  been  issued  under  blank,  uncovered, 
credit,  in  terms  with  agreement.  Drafts  issued  against 
Travelers'  Letters  of  Credit  are  always  made  payable  at  sight 
or  demand,  and  will  be  charged  to  the  American  account 
upon  presentation  and  payment.  All  payments,  telegraphic, 
or  otherwise,  effected  by  the  foreign  correspondents  for  its 
account,  will  be  placed  to  its  debit  upon  receipt  of  respective 
instructions  from  the  American  bank. 

A  few  suggestions  follow  that  may  be  profitably  employed, 
at  times,  provided  discount  rates  have  not  been  secured  on 
bills  to  arrive. 

As  the  interest  rate  on  American  cash  credit  balances 
abroad  is  always  less  than  the  discount  applied  to  time  bills 
of  exchange,  forwarded  for  credit  of  the  American  bank, 
under  discount,  considerable  money  can  be  saved  by  the 
American  banker  in  the  form  of  discounts,  by  instructing  his 
correspondents  at  the  time  his  remittances  of  this  nature  are 
forwarded,  to  discount  the  bills  only  when  his  cash  account 
requires  funds  to  prevent  overdraft. 

Bills  accompanied  by  these  instructions  will  be  presented 
for  acceptance  upon  arrival,  and  then  held  in  the  portfolio  by 
the  correspondents  of  the  American  bank  for  account,  interest 
accruing  thereon  to  its  credit  from  date  of  acceptance  to  date  of 
discount,  if  documentary  acceptance  bills,  or  at  the  retirement 
rate  of  discount,  if  documentary  payment  bills,  payable  in 
European  continental  countries,  provided  the  latter  are  not 
taken  up  by  drawees. 


When  to  Discount  Bills.  197 

When  should  bills  be  discounted  in  compliance  with  the  above 
suggestion  is  a  question  naturally  asked,  and  reply  is : 

I.  At  a  time  when  the  American  banker  is  accumulating 
foreign  bills  of  exchange,  by  purchases  from  day  to  day,  to 
create  ample  funds  for  the  protection  of  checks  to  be  delivered 
at  some  future  date,  under  contract  of  exchange,  sold  by  him 
for  "Future  delivery,"  or,  as  cover  for  outstanding  << Finance 
Bills"  maturing  at  a  fixed  date; 

II.  At  times,  when  the  discount  rate  in  the  country  on  which 
the  bills  of  exchange  are  drawn,  is  high,  and  the  American 
bank  has  reason  to  believe  that  by  postponing  discount,  it  will 
profit  by  a  reduction  in  the  discount  rate  on  which  its  calcula- 
tions are  based; 

III.  Or,  at  a  time,  when  the  rates  for  exchange  are  abnor- 
mally low,  and  the  American  bank  is  building  up  its  foreign 
balances  by  daily  purchases  of  discountable  bills  of  exchange 
at  the  current  prices  to  be  re -sold  by  it,  subsequently,  in  the 
form  of  checks,  when  the  market  has  had  the  anticipated 
advance. 

Why  could  not  the  American  bank  accomplish  the  above 
purposes  by  holding  bills  in  its  portfolio,  as  outlined  in  the 
Chapter  devoted  to  "Foreign  Bills  of  Exchange  Purchased 
for  Investment" — the  reply  is:  that  these  bills  held  in  the 
portfolios  of  the  foreign  correspondents  could,  at  any  time, 
be  discounted  at  the  current  rate  of  discount,  for  immediate 
delivery,  which  rate  is  usually  lower  than  for  delivery  to 
arrive,  and  furthermore,  the  American  banker  could  effect 
cable  transfers  at  any  time,  without  creating  cash  overdrafts, 
as  his  correspondents  would  discount  bills  from  portfolio  for 
an  equivalent  amount  to  comply  with  the  following  instruc- 
tion, viz  :  "Discount  when  our  cash  account  requires  funds  to 
prevent  overdraft." 


Chapter  XXIV. 

NEW  YORK  EXCHANGE. 
THE  FOREIGN  EXCHANGE  BROKER. 

'X^HE  foundation  of  foreign  exchange  banking  throughout 
-*■  the  United  States,  as  explained  in  Chapter  XV,  is 
constructed  by  New  York  City  bankers,  and  the  American 
quotations  whereon  foreign  bills  of  exchange  are  bought  and 
sold  emanate  from  the  banking-houses  in  Wall  Street  in 
that  Metropolis. 

The  factor  of  New  York  Exchange,  therefore,  enters  into 
every  foreign  exchange  transaction  in  the  United  States  of 
America  executed  by  American  bankers,  not  domiciled  in  the 
City  of  New  York. 

The  illustrations,  one  and  all,  covering  the  processes  to 
determine  the  prices  to  be  paid  for  the  various  types  of 
foreign  bills  of  exchange  submitted  in  the  several  European 
Accounts,  were  computed  on  the  basis  of  New  York  Exchange 
being  quoted  at  par  in  the  purchasing  market;  and,  conse- 
quently, the  factor  of  New  York  Exchange  did  not  enter  into 
the  examples  given. 

Had,  however.  Exchange  on  New  York  City  been  quoted 

at  fifty  cents  per  one  thousand  dollars,  discount,  in  the  market 

where  the  various  foreign  bills  of  exchange  were  purchased, 

then  an  additional  item  of  one-half  per  mille — the  equivalent 

of  fifty  cents   per  one   thousand  dollars,  discount — should 

have  been  included  in  calculating  the  total  charges  on  the 

respective  bills  of  exchange. 

198 


New  York  Exchange  at  Premium.  199 

To  illustrate:  on  the  basis  of  a  discount  of  one-half  per 
mille  for  New  York  Exchange,  the  additional  disbursement 
would  have  amounted  to  the  respective  subjoined  marginal 
charge : 

On  Bills  of  Exchange  on  Basis  of  Calculation.  Dollars. 

Great  Britain,       -  100  pounds,  Sterling  =$485,  .2425 

Germany,         -         -  400  marks     -         -     =     94,  .047 

Holland,  -         -  100  florins  -         =     40,  .02 

France,  Belgium,  and  francs. 

Switzerland,     -  100  dollars   -         -      =   525,  .2625 

Had  New  York  Exchange  been  selling  at  fifty  cents  per 
\       one  thousand  dollars,  premium,  rather  than  at  a  discount, 
.   i .      then  the  factor  of  New  York  Exchange  would  have  been  an 
5  1^     item  of  profit  instead  of  a  loss  or  charge. 

*  =  i  With  the  aid  of  the  preceding  explanation,  the  determma- 

jf^k       tion  of  the  gain  or  loss,  represented  by  the  factor  of  New 
^1 J       York  Exchange,  relative  to  transactions  in  foreign  exchange 
^1*       in  American  cities,  outside  of  Greater  New  York,  will  be  a 
#  simple  mathematical  problem;   such  element  of  Exchange, 

owing  to  the  constantly  vacillating  quotations  for  Exchange 
on  New  York  City  in  the  various  financial  centres  of  the 
United  States,  can  not  be  fixed,  but  must  be  determined  by 
every  American  banker,  before  his  foreign  exchange  transac- 
tions are  entered  into. 

The  banking-houses  of  the  Western  States  need  large 
portions  of  New  York  Exchange  for  the  requirements  of  their 
local  and  country  clientele,  and  the  amount  of  New  York 
Exchange  created  by  their  Foreign  Exchange  Departments 
through  the  sale  of  bills  to  New  York  bankers  reduces  to  the 
extent  of  their  issue  the  sum  total  of  their  purchases  of  New 
York  Exchange  that  otherwise  would  have  to  be  purchased 
in  the  open  market  through  New  York  exchange  brokers, 
eliminating,  of  course,  the  New  York  funds  received  from 
their  customers  in  the  usual  course  of  business. 


20C  International  Exchange. 

THE    FOREIGN    EXCHANGE    BROKER. 

THE  prices  of  commodities,  having  values  of  a  fluctuating 
nature,  are  in   most  cases  settled  upon  the  floors  of 
various  exchanges;  these  marts  are  known  as  the 

Stock  Exchanges  for  determining  values  of  stocks  and 
bonds; 

Petroleum  Exchanges  for  adjusting  the  values  of  petroleum 
and  its  products; 

Cotton  Exchanges  for  regulating  the  value  of  cotton; 

Boards  of  Trade  for  fixing  the  value  of  cereals  and  pro- 
visions, etc. 

The  values  of  the  foreign  exchanges,  at  times  of  a  highly 
vacillating  nature,  are  not  created  or  recorded  within  the  walls 
of  any  Exchange,  but  are  deduced  and  tabulated  by  the 
Foreign  Exchange  Broker,  in  New  York  City,  from  actual 
conditions  existing  there  between  the  prominent  Foreign 
Exchange  Bankers. 

The  task  of  formulating  market  quotations,  especially  in  a 
nervous  market,  is  not  an  easy  one,  and  consequently  requires 
years  of  experience.  It  is  accomplished  in  the  manner 
following: 

Early  in  the  morning,  the  Broker  makes  his  first  call  upon 
all  of  the  leading  bankers,  and  inquires  whether  they  are 
buyers  or  sellers  of  exchange,  and  at  what  prices.  When  he 
has  completed  his  circuit,  he  is  in  a  fair  position  to  gauge  the 
approximate  market.  When  no  important  political  or 
financial  event  has  transpired  over  night,  the  opening  quota- 
tions are  generally  based  upon  the  closing  quotations  of  the 
previous  day.  Assume  that  these  rates  were  for  Sterling 
checks  on  London,  4.87.90  bid;  4.88  asked;  but  that  there 


Duties  of  the  Broker.  201 

were  more  bankers  willing  to  buy,  than  sell,  at  these  rates. 
The  Broker  would  quote  the  market  "Strong,  with  a  higher 
tendency,"  since  the  excess  of  demand  as  compared  with  the 
supply  would  usually  result  in  higher  prices  before  the  close 
of  the  day.  As  the  factors  and  conditions  regulating  the 
rates  of  foreign  exchange  are  constantly  changing,  the  Broker 
must  be  on  the  alert  throughout  the  entire  day,  between  the 
offices  of  the  bankers,  to  remain  in  constant  touch  with  the 
market. 

A  banker  may  have  been  a  seller  of  Sterling  exchange  at 
ten  o'clock  at  4.88,  and,  a  few  minutes  later,  some  unforeseen 
transaction  may  make  him  a  buyer  at  a  higher  price;  and  so 
on  throughout  the  day,  the  requirements  and  attitudes  of  the 
bankers  are  undergoing  a  constant  change  resulting  in  fresh 
quotations  being  established. 

The  small  percentage  of  profits  in  foreign  exchange 
transactions  has  resulted  in  a  reduction  of  the  Broker's 
commission  within  the  last  few  years. 

In  former  days,  the  conventional  scale  of  commission  was 
1/32%  on  Sterling,  that  is,  about  $15  on  every  ;^  10,000, 
Sterling,  and  1/32%  on  marks,  francs,  etc.,  whereas,  at  the 
present  day,  $5  on  ;^io,ooo,  and  1/64%  on  the  continental 
exchanges,  are  the  usual  brokerages. 

In  addition  to  the  reduction  of  commission,  the  Broker  has 
sustained  a  further  loss,  through  the  practice  in  vogue  today, 
of  bankers  dealing  direct  with  each  other,  entirely  dispensing 
with  the  services  of  the  Broker. 

When  it  is  taken  into  consideration  that  the  Bankers  are 
indebted  to  the  Foreign  Exchange  Brokers  for  keeping  them 
posted  with  respect  to  the  fluctuations  and  general  condition 
of  the  market,  it  is  only  just  to  reward  the  services  of  the 
Broker  by  giving  him  an  opportunity  to  make  commissions. 


Chapter  XXV.* 
CONVERSIONS. 

Conversions  of  the  Moneys  of  Foreign  Countries  into 
United  States  Money  and  Vice- Versa  Operations. 

Additions    and    Subtractions   in    English    Money,   and 

Computation  of  Interest  or  Per  Cent,  on 

English  Money. 

ENGLISH    MONEY. 

MOST  foreign  countries  have  adopted  what  is  known  as 
the  decimal  monetary  system,  wherein  loo  of  the 
decimal  equal  one  of  the  unit;  for  example:  money  of  the 
United  States  where  lOO  cents  equal  one  dollar  or  unit.  The 
English  monetary  system  in  use  throughout  Great  Britain 
and  most  of  her  colonies  and  dependencies  and  to  some  extent 
in  all  the  countries  of  the  world,  is  so  different  from  that  of 
other  countries,  that  the  following  explanations  and  examples 
seem  necessary: 

Table  of  English  Money. 

EXPRESSED  £        s.         d.         far. 

4  Farthings,  -  far.      =  i  Penny,       i  =r  20  =  240  =  960 

12  Pence,       -     d.         =1  Shilling,  i  =    12  =    48 

20  Shillings,  -   s.         =1  Pound  or  Sovereign,    i  =      4 

21  Shillings,         -        —  i  Guinea. 

•  By  permission  from  ''Foreign  Exchange,"  by  Howard  K.  Brooks,  Chicago. 

202 


English  Money.  203 

Addition  in  English  Money,  Example: 
£        s.      d. 


{ 


240       I 2       8 
Add,         -{        15       10       5 

5         5       4 


Answer,         £261         8s.     5d. 

Explanation. — Since  I2d.  =  is.  and  the  total  of  pence  is 
17,  carry  i  to  shillings  leaving  5d;  since  20s.  =  i£,  and  the 
total  of  shillings  is,  including  i  carried  from  pence,  28,  carry 
I  to  pounds,  leaving  8s. 

Subtraction  in  English  Money,  Examples; 

£        s.       d. 
From  215       12       8 

Subtract,      210         8       4 

Answer,     £     5         4s.     4d. 
This  is  simple  subtraction  as  in  other  moneys,  the  minuend 
or  upper  figures  being  greater  in  each  case. 

£         s.       d. 
From  215        12       8 

Subtract,      210         4       9 

Answer,     £     5         7s.  iid. 

The  subtrahend  or  lower  figures  in  pence  being  greater, 
add  12  to  upper  figure,  making  20  (i2d.  =  is.);  9  from  20 
leaves  1 1 ;  carry  i  to  shillings. 

£        s.      d. 
From  215       12       8 

Subtract,      212        15      10 

Answer,     £2       i6s.  lod. 

The  pence  and  shillings  in  lower  amount  being  greater, 
add  12  to  pence,  making  20,  10  from  20  leaves  lod.;  carry  i 
to  shillings,  making  32,  16  from  32  leaves  i6s.;  carry  i  to 
pounds,  213  from  215  leaves  2  pounds. 


204  International  Exchange. 

To  Reduce  Shillings  and  Pence  to  Decimal  of  Pound. 

Multiply  the  shillings  by  ,05,  because  one  shilling  is  1/20 
or  five-hundredths  of  a  pound;  multiply  the  pence  by  .004  1/6, 
because  one  penny  is  i/240th  or  4  1/6  thousandths  of  a 
pound.  To  avoid  the  use  of  the  fraction  1/6,  add  one  if 
result  is  over  12,  and  2  if  over  35,  and  result  will  be  the  same. 

Example: — Reduce  525  pounds,  los.,  6d.,  to  pounds  and 
decimal. 

^525=^^525. 
los.  =  .50 

6d.=  .025 

Decimal,        ^525-525 

Note. — By  multiplying  the  decimal  of  any  amount  in 
pounds,  shillings,  and  pence  so  reduced,  by  the  rate  per 
pound,  the  product  will  always  be  the  amount  in  United 
States  money. 

To  Convert  English  Money  into  United  States  Money. 

Reduce  the  shillings  and  pence  to  decimal  of  pound,  as 
above,  then  multiply  by  rate  per  pound. 

Example. — To  find  the  equivalent  of  £s^S>  los.,  6d.,  in 
United  States  money  at  rate  of  $4,963^  per  £. 

los.  =  .50 

6d.  =  .025 

Decimal,        ;^525.525 

4.965  =  rate 
2627625 
3153150 
472972  5 
2 102 100 


Answer,  $2609231625  or  $2,609.23 

Note. — See  example  on  the  opposite  page  converting  the 
same  amount  of  United  States  money  into  English  money. 


English  Money.  205 

To  Convert  United  States  Money  into  English  Money. 

Divide  the  amount,  dollars  and  cents,  by  the  rate  per  {£) 
pound,  Sterling,  and  the  quotient  will  be  the  pounds  and 
decimal  of  pound;  multiply  the  decimal  (not  the  pounds)  by 
20  (20s.  =  i;^),  and  the  product  will  be  the  shillings  and 
decimal  of  shillings;  multiply  the  decimal  of  shillings  by  12 
(i2d.  =  IS.),  and  the  result  will  be  the  pence  and  decimal  of 
pence;  if  decimal  of  pence  is  50  or  over,  add  i  to  pence. 

Example: — To  find  the  equivalent  in  English  money  of 
$2,609.23  at  rate  of  $4.96^  per  £. 


Operation: 

4.965)2609.230(525.5246 
2482  5                20 

u  'A '' 

12673     s.   10.4920 

9930                        12 

2743     d.    5.8040 
24825 

I  2250 

9930 

23200 
19860 

33400 

29790 

3610  Answer,  ;^525,  los.,  6d. 

Note. — This  example  is  proof  of  correctness  of  preceding 
example  of  same  amounts. 


2o6  International  Exchange. 

To  Find  Interest  or  Per  Cent,  on  English  Money. 

First  reduce  shillings  and  pence  to  decimal,  see  page  204; 
multiply  by  rate  of  interest  or  per  cent.;  multiply  decimal 
of  that  result  by  20  (20s.  =  i;^),  and  whole  number  will  be 
shillings;  multiply  decim.al  of  shillings  by  12  (i2d.  =  is.),  and 
the  product  will  be  pence  and  decimal  of  pence. 

Example — Find  interest,  4%  on  ^^550, 15s.,  iid.,  one  year. 

15s.  =         .75 
1 1  d.  =  .046 

;^'s  and  decimal,     550.796 

.04%  =  rate 

;^22.03l84 

20 


s.    0.63680 
12 


d.         7.64160     Answer,  ;^22,  os.,  8d. 

Another  Way  to  Find  Interest  on  English  Money. 

Point  off  two  figures  at  right  of  pounds,  shillings,  and 
pence;  multiply  by  rate  per  cent,  or  interest;  carry  to  shillings 
I  for  each  12  pence,  and  to  oounds  i  for  each  20  shiUings; 
multiply  the  decimal  of  pounds  by  20,  adding  thereto  the 
shillings;  and  multiply  the  decimal  of  that  product  by  12, 
adding  thereto  the  pence. 

Example: — To  find  4%  of  ;^55o,  15s.,  iid. 
Pointed  off        ;^5.5o        .15s.         .iid. 

.04%  =  rate 


^22.03 

20 

3s.     8d. 

s.   0.63 
12 

(3s.  added) 

d.   7.64 
44d.  =  3s., 

(8d.  added) 
8d.;  60s.  plus 

Explanation.  —  44d.  =  3s.,    8d.;    60s.  plus  3s.  =  63s. 
Answer  equals  ;;^22,  os.,  8d. 

Note  that  in   multiplying  decimal  of  £  by  20  the  3s.  is 
added,  and  in  multiplying  decimal  by  12  the  8d.  is  added. 


English  Money.  207 

To    Find   Ad   Valorem   Duty  on   Importations,  Value 
Being  Expressed  in  English  Money. 

Reduce  pounds,  shillings,  and  pence  to  decimal  as  explained 
before;  multiply  by  par  rate  of  exchange,  $4.8665;  multiply 
the  product  by  rate  of  duty,  per  cent.,  adding  the  result  to 
product  previously  derived  by  multiplying  by  rate  of 
exchange. 

Example: — Value  of  goods,  i^5 50,  15s.,  iid. 
Import  duty,  30%. 

15s.  =  .75 

iid.  ^  .046 

Decimal  £SS^-79^ 


4.8665 

Rate  used  by 

2753980 

Custom  House,  par. 

3304776 

, 

3304776 

$2,680.45 

4406368 

.30% 

2203184 

$804.1350  Duty.       $2,680.4487340  Cost  of  goods,  United 

States  money,   not 
804.13  including  duty. 

$3,484.57         Cost  of  goods,  including 
duty. 

The  legal  value  of  one  pound,  Sterling  {£),  in  the  money 
of  the  United  States  as  fixed  by  Director  of  Mint  is  $4.8665. 


2o8  International  Exchange. 

GERMAN    MONEY. 

To  Convert  German  Money  into  United  States  Money. 

Table  of  German  Money: 

lOO  Pfennig  =  i  Mark. 

Example: — To    find    the    equivalent    of  M.  4360.76   in 

United  States  money  at  the  rate  of  95  ^  cents  for  every  4 

marks: 

4)436076 

1090.19 
.955 


545095 
545095 
981171 


$1041.13145 

Explanation. — Divide  the  total  number  of  marks  by  4, 
as  the  rate  is  quoted  for  4  marks,  multiply  the  quotient  by 
•95/^  and  the  result  will  give  the  answer. 

Another  method  may  be  employed,  if  preferable: 

4)   -955 

.23875 
436076 


143250 
167125 
000000 
143250 
71625 
95500 


$1041.1314500 

Explanation. — Divide  the  rate  of  .95^4,  or  4  marks,  by 
4;  the  quotient  will  be  the  rate  for  one  mark;  multiply  by 
the  total  number  of  marks  and  the  result  will  give  the  answer. 

Germany  having  the  decimal  monetary  system,  interest  is 
computed  on  mark  amounts,  the  same  way  as  on  dollar 
amounts.  This  applies  to  all  countries  having  decimal 
monetary  systems. 


German  Money.  209 

To  Convert  United  States  Money  into  German  Money. 

Example: — To  find  the  equivalent  of  $1041.13  in  German 
money  at  the  rate  of  95^  cents  for  every  4  marks: 

$1041.13 

4 

$  .955)$4i64-520(436o.76 
3820 

344  5 
2865 


5802 
5730 
7200 
6685 
5150 
5730 

Explanation. — Since  the  rate  quoted  is  for  4  marks, 
multiply  the  dollar  amount  by  4,  and  then  divide  the  result 
by  the  rate  .955,  for  4  mark.*;,  and  the  quotient  will  be  the 
number  of  marks. 

Or  secure  the  same  result  in  the  following  manner: 

4)  -955 

•23875)$i04i- 13000(4360.76 
95500 
86130 
71625 


145050 
143250 
1 80000 
167125 


128750 
143250 

Explanation. — Divide  .955,   rate   for  4   marks,   by  4; 
quotient  will   be  rate    for   i  mark;  then  divide   the   dollar 
amount,  $1041.13,  by  .23875,  rate  for  i  mark;  quotient  will 
give  the  number  of  marks. 
14 


2IO  International  Exchange. 

FRENCH    MONEY. 

To  Convert  French  Money  into  United  States  Money. 

Table  of  French  Money: 

ICO  Centimes  =  i  Franc. 

Example: — To  find  the  equivalent  of  francs  2546.50  in 

United  States  money  at  the  rate  of  5.15  francs,  5  francs  and 

15  centimes  for  every  dollar: 

5.15)2546.50(494.47 
2060 


4865 

4635 
2300 
2060 


2400 
2060 

3400 

3605 
Explanation. — Since  $1.00  is  equal  to  5  francs  and  15 
centimes,   francs   2546.50  equal  as  many  dollars  as   5.15   is 
contained  in  francs  2546.50  or  494.47  dollars. 

Example: — To  find  the  equivalent  of  $494.47  in  French 
money  at  the  rate  of  5.15  —  5  francs  and  15  centimes  for  every 
dollar:  494-47 

5-15 
247235 
49447 
247235 
2546.5205 

Explanation. — Since  i  dollar  is  equal  to  5  francs  15 
centimes,  $494.47  equals  5.15  times  this  amount  or  francs 
2546.50. 

As  the  rates  of  foreign  exchange  covering  all  other  coun- 
tries are  expressed  in  decimals  of  a  dollar,  cents,  it  is  not 
necessary  to  give  examples  illustrating  the  various  conver- 
sions, the  process  in  each  case  being  merely  multiplication  or 
division,  as  for  example : 


Swedish  Kroner.  211 


SWEDISH    MONEY, 
Swedish  into  United  States  Money. 

To  find  the  equivalent  of  1960.75  kroner  in  United  States 
money  at  the  rate  of  27  cents  per  krone: 

Kroner  1960.75 

^ 

1372525 
392150 


$529.4025 


United  States  Money  into  Swedish  Money. 

Vice-versa  Operation:— To  find    the    equivalent    of 
$529.40  in  Swedish  money  at  the  rate  of  27  cents  per  krone: 

27)529.40(1960.75 

27 


259 
243 

164 
162 

200 
189 

no 
S35 


212  International  Exchange. 

Exchange  Tables. 

As  the  conversion  of  the  moneys  of  the  various  foreign 
countries  into  United  States  money,  and  vice-versa  opera- 
tions, entail  a  great  deal  of  clerical  work  and  result  in 
considerable  loss  of  time,  "Exchange  Tables"  have  been 
compiled  for  the  convenience  and  requirements  of  the  foreign 
exchange  banker,  and  are  universally  employed  nowadays. 

Among  the  recognized  standard  works  of  this  nature, 
mention  may  be  made  of  the  following:  Buchan's  "Sterling 
Exchange  Tables,"  published  by  T.  C.  King,  Chicago; 
"Tables  of  German  Exchange,"  published  by  C.  H.  Clayton 
&  Co.,  New  York;  "French  Conversion  Tables,"  by  J.  W, 
Barrow,  published  by  C.  H.  Clayton  &  Co.,  New  York; 
"Complete  Foreign  Exchange  Conversion  Tables,"  published 
by  H.  K.  Brooks,  78  Monroe  Street,  Chicago. 

Especial  recommendation  is  vouched  for  the  "Exchange 
Tables"  by  Mr.  H.  K.  Brooks,  embracing  the  moneys  of  all 
foreign  countries,  besides  containing  much  other  valuable 
information. 

Mr.  Brooks  is  also  the  author  of  an  elementary  treatise  on 
Foreign  Exchange  and  the  Monetary  Systems  of  the  world, 
which  we  are  pleased  to  recommend. 


Chapter  XXVI. 

ARBITRAGE    TRANSACTIONS. 

THE  triangular  process  of  an  indirect  or  circuitous  remit- 
tance of  money  from  one  country  to  another  with 
different  monetary  units  through  the  intervening  agency  of  a 
foreign  nation,  also  on  a  different  monetary  basis,  as  for 
example,  a  remittance  of  money  by  a  New  York  banker  to 
his  London  correspondent  through  the  agency  of  the  New 
York  banker's  Berlin  correspondent,  necessitating  the  conver- 
sion of  American  dollars  into  German  marks,  and  German 
marks  into  English  pounds,  Sterling,  constitutes  what  is  termed 
an  Arbitrage  Transaction. 

Arbitrations  and  parities  of  international  exchange  will 
doubtless  be  found  to  be  one  of  the  most  interesting,^  and 
instructive  features  relative  to  foreign  exchange,  and  should 
not  be  confounded  with  Stock  Exchange  Arbitrations,  since 
in  no  manner  or  form  are  Arbitrations  and  parities  of 
international  exchanges  affiliated  with  Stock  Exchange 
Arbitrations. 

Despite  the  immense  amount  of  credit  balances  in  favor  of 
American  banks  on  the  books  of  their  London  fellow-bankers, 
created  by  the  purchase  and  remittance  for  credit  of  bills  of 
exchange  on  Great  Britain,  payable  in  pounds,  Sterling,  the 
demand  in  New  York  City  for  bankers'  checks  on  London  is 
so  great  that  American  bankers  frequently  issue  checks  on 
London  against  cash  remittances  received  by  their  London 
correspondents  from  the  American  bank's  European  conti- 
nental banking  friends. 

Operations  of  this  kind  are  in  fact  so  frequent  that  the 
quotations  in  New  York  City  for  continental  exchanges  are 
generally  based  upon  the  cost  price  of  pounds,  Sterling,  laid 
down  in  London,  through  the  intermediate  agencies  of  the 
German,  French,  Dutch,  and  Belgian  confreres,  respectively. 

213 


214        International  Exchange. 

The  prominent  American  banks  engaged  in  the  foreign 
exchange  business  receive  daily  telegraphic  advices  from 
their  correspondents  in  the  various  European  financial  centres, 
covering  the  quotations  whereat  the  respective  correspondent 
will  sell  to  the  American  bank  checks  for  pounds,  Sterling, 
payable  in  London,  for  prompt  delivery,  and  for  delivery  by 
remittance  to  London,  within,  say,  fifteen  days.  The  quota- 
tion for  prompt  delivery  can  be  applied  to  remittances  that 
may  be  forwarded  to  the  London  correspondent  for  account 
and  credit  of  the  American  bank  by  the  continental  corre- 
spondent against  cash  credit  balances  in  hand,  whereas  the 
quotation  for  checks  on  London,  delivery  within  fifteen  days, 
serves  as  a  basis  for  purchase  of  foreign  bills  of  exchange  on 
the  day  of  the  receipt  of  the  quotation,  since  the  proceeds  of 
such  bills  can  be  utilized  in  purchasing  London  checks  at 
the  specified  quotations,  provided  such  checks  are  contracted 
for  with  the  European  banker  to  whom  such  bills  are  remitted. 

Continental  bankers  charged  in  former  years  a  brokerage 
for  purchasing  checks  on  London,  including  the  remittance 
to  London  for  account  of  the  American  banks;  in  recent 
years,  however,  this  brokerage  has  been  waived,  and  the 
prices  submitted  nowadays  are  net  quotations. 

The  prices  for  London  checks  in  the  money  markets  of  the 
financial  centres  of  continental  Europe  fluctuate  between  the 
rates  of  exchange  that  gold  bullion  can  be  profitably  exported 
and/or  imported  to  and  from  London  and  the  respective 
European  cities.  Such  rates  signify  the  "gold  or  bullion 
points,"  and  are  sub-tabulated  in  conjunction  with  the  Mint 
Pars  of  Exchange  for  reference : 


Mint 

Par: 

Import  Rate: 

Export  Rate: 

Berlin, 

marks. 

20.43 

20.34 

20.52 

Paris, 

francs. 

25.221^ 

25.12>^ 

25-32)^ 

Rotterdam, 

florins. 

12.10 

12.04 

12.15 

Mint  Par  Midway  Between  Gold  Point  Rates.  215 

In  normal  times,  the  rates  for  London  checks  in  continental 
cities  register  between  the  export  and  import  rates,  but  these 
extreme  variations  may  be  considerably  deranged,  tempo- 
rarily, in  times  of  extreme  disquietude,  brought  on  by  wars 
or  other  important  political  events,  until  the  natural  law  of 
supply  and  demand  can  again  assert  itself  by  adjusting  and 
confining  the  differences  in  the  rates  of  exchange  to  points 
within  their  usual  limits. 

The  Mint  Par  of  Exchange  in  the  various  mentioned 
financial  centres  is  midway,  it  will  be  observed,  between  the 
export  and  import  or  gold  point  rates. 

To  illustrate:  The  extreme  difference  between  the  gold 
point  rates  for  marks,  namely,  20.52  and  20.34,  in  Berhn,  is  18 
pfennig  to  the  English  pound,  Sterling;  and  one-half  of  such 
difference,  or  9  pfennig,  added  to  the  Mint  Par  for  marks  of 
20.43  gives  the  export  rate  for  marks  of  20.52,  and  such 
difference  of  9  pfennig  deducted  from  the  Mint  Par  for  marks 
of  20.43  gives  the  import  rate  for  marks  of  20.34. 

This  difference  of  9  pfennig  referred  to  represents  the  cost 
of  shipping  gold  bullion  between  London  and  Berlin,  and  is, 
approximately,  one-half  per  cent.,  including  the  charges  for 
brokerage,  freight,  insurance,  and  other  incidental  debit  items. 

When  the  rate  of  exchange  for  London  checks  in  Berlin 
declines  below  the  Mint  Par  rate  of  20.43  marks,  it  is  indicative 
of  a  tendency  to  import  gold  from  London  to  Berlin;  and 

When  such  rate  of  exchange  advances  beyond  that  quota- 
tion the  tendency  toward  exporting  gold  from  Berlin  to 
London  is  expressed. 

Many  factors  cause  and  control  the  fluctuations  in  the 
quotations  for  checks  on  London  in  the  principal  European 
cities,  and  the  following  are  among  the  chief  ones: 


2i6        International  Exchange. 

Factors  having  a  tendency  to  advance  prices  for  checks  on 
London  in  continental  financial  centres : 

I.  Liquidation  of  loans  maturing  in  London,  requiring  heavy 
cash  balances  created  by  purchase  in  the  open  market  of  checks 
on  London; 

II.  Subscriptions  to  British  loans  or  purchase  of  securities 
in  the  London  market  necessitating  cash  remittances  in  the 
form  of  checks  on  London  in  payment  thereof ; 

III.  Fortnightly  settlements  on  the  London  Stock  Exchange 
to  protect  operations  in  securities  dealt  in  for  foreign  account 
by  remittance  of  London  checks ; 

IV.  The  purchase  in  the  open  market  of  London  checks  by 
European  continental  correspondents  of  American  banking 
institutions  for  remittance  to  London  for  credit  and  account  of 
American  bankers; 

V.  A  higher  rate  of  interest  for  money  in  London  than  that 
obtaining  on  the  continent,  attracting  and  inviting  deposits  of 
continental  bankers  with  their  London  agencies  or  correspond- 
ents for  employment  in  the  London  money  market,  requiring 
cash  funds  in  London  created  by  the  purchase  in  the  respective 
countries  of  checks  on  London  for  remittance. 

Enumeration  follows  of  the  chief 

Factors  tending  to  depress  prices  for  checks  on  London  in 
continental  financial  centres: 

I.  Liquidation  of  loans  negotiated  by  London  financiers, 
maturing  with  bankers  in  the  several  cities  on  the  continent, 
requiring  large  credit  balances  to  be  held  at  the  disposal  of 
bankers  in  these  respective  cities  by  London  banking-houses, 
available  by  checks  on  London  to  be  sold  in  open  continental 
money  markets; 


Indirect  Factors.  217 

II.  Subscriptions  by  London  financiers  to  European  conti- 
nental national  loans,  payment  therefor  to  be  effected  by  the 
sale  of  checks  on  London,  in  the  open  continental  markets, 
drawn  against  credit  balances  created  by  London  financial 
institutions  for  that  purpose; 

III.  Fortnightly  settlements  on  the  London  Stock  Exchange, 
when  operations  in  securities  dealt  in  for  foreign  account  have 
resulted  in  credit  balances  in  favor  of  continental  financiers 
that  may  be  checked  against  and  proceeds  realized  by  sale  of 
London  checks  in  the  open  market; 

IV.  The  sale  of  checks  on  London  in  the  open  markets  by 
European  correspondents  of  American  banks,  issued  at  the 
request  of  and  for  the  credit  and  account  of  American  banking 
associations ; 

V.  The  withdrawal  from  London  agencies,  or  London  corre- 
spondents of  European  continental  banking-houses,  of  their 
funds  through  the  issue  and  sale  of  checks  on  London  in  the 
open  money  markets  on  the  continent,  when  engaged  in  on  a 
large  scale  and  induced  by  higher  rates  of  interest  for  money 
on  the  continent  than  prevailing  in  England. 

Chapter  V  called  attention  to  the  direct  factors  and  conditions 
influencing  fluctuations  in  exchange  rates  in  the  United 
States;  and  reference  incidentally  therein  was  made  to  the 
indirect  or  circuitous  elements  having  a  like  tendency. 

The  present  effort  will  be  to  fully  explain  such  indirect  or 
circuitous  factors :  a  very  large  percentage  of  the  foreign  bills 
of  exchange  drawn  upon  the  various  continental  European 
countries,  purchased  and  remitted  by  American  banks  to 
their  correspondents  in  the  respective  countries,  as  heretofore 
explained,  are  tantamount  to  purchases  of  English  pounds, 
Sterling,  when  the  proceeds  of  such  bills  are  utilized  by  the 
continental  bankers  for  buying  checks  on  London  for  remit- 
tance to  and  credit  of  the  American  banks  on  the  books  of 
their  London  quasi -agents. 


2i8  International  Exchange, 

These  transactions  necessitate  the  conversions  of  marks, 
francs,  florins,  and  other  foreign  moneys,  into  pounds.  Sterling, 
and  the  greater  the  cost  of  such  conversions,  or,  in  other  words, 
the  higher  the  rate  of  exchange  for  checks  on  London  in  the 
European  continental  market,  the  lower  the  parity  of  exchange 
or  value  of  such  continental  exchanges  in  the  United  States. 

To  explain:  assuming  that  the  selling  price  for  checks  on 
London  in  Berlin  is  20.38  marks  for  one  pound,  Sterling,  and 
that  American  bankers'  checks  on  London  can  be  sold  for 
$4.86  per  pound.  Sterling,  in  the  United  States,  the  parity  of 
exchange  for  checks  on  Berlin  in  the  United  States  would  be 
$  -95388  for  each  four  marks,  or  23.847  cents  per  mark,  and 
is  found  in  the  following  manner:  since  one  pound,  Sterling, 
or  $4.86,  costs  20.38  marks  in  Berlin,  the  parity  of  exchange, 
or  value  of  one  mark  on  Berlin  in  the  United  States,  would 
be  as  much  as  20.38  is  contained  times  in  $4.86,  or  .23847, 
and  four  marks,  the  usual  manner  of  quoting  exchange  on 
Germany,  four  times  .23847,  or  $  .95388. 

By  a  similar  operation  it  will  be  found,  that  had  the  price 
for  checks  on  London  been  20.42  marks,  and,  although  the 
pound,  Sterling,  on  London  was  worth  the  same  in  the 
United  States,  viz:  $4.86,  the  parity  of  exchange  in  the 
United  States  for  one  mark  on  Berlin  would  have  been  only 
.238,  or  $  .95201  for  four  marks,  hence  it  will  be  seen  that 

The  higher  the  price  for  checks  on  London  is  in  Berlin,  the 
lower  the  parity  or  value  of  Berlin  exchange  is  in  the  United 
States ;  and  vice  versa. 

This  principle  applies  to  all  continental  exchanges;  and  is 
the  foundation  whereon  the  quotations  for  checks  in  marks, 
francs,  florins,  and  other  foreign  moneys,  are  calculated  by 
American  bankers. 

The  prominent  New  York  foreign  exchange  bankers,  who 
establish  the  rates  for  these  exchanges  in  the  United  States, 


Prompt  Telegraphic  Advices.  219 

are  guided  in  so  doing,  by  computing  the  parities,  or  values 
in  the  United  States,  with  the  aid  of  cablegrams  received 
every  morning — from  their  correspondents  in  Berlin,  Paris, 
Rotterdam,  and  other  European  cities,  quoting  the  prices  for 
checks  on  London  in  their  respective  markets — in  conjunction 
with  the  current  rate  of  exchange  in  New  York  City  for 
bankers'  checks  on  London,  payable  in  pounds.  Sterling,  in 
the  manner  heretofore  explained. 

Any  material  fluctuation  in  the  price  for  London  checks, 
in  the  continental  financial  centres,  is  immediately  advised 
by  cablegram  by  the  respective  foreign  correspondent,  and  a 
commensurate  advance  or  decline  recorded  in  the  price  for 
the  continental  exchange  affected  thereby  in  New  York  City. 

An  advance  or  decline  in  the  price  for  bankers'  checks  on 
London  in  New  York  City  of  course  affects  the  prices  for 
continental  exchange,  even  though  no  fluctuation  has  taken 
place  in  the  price  for  London  checks  on  the  continent,  since 
the  price  for  checks  on  London  in  New  York  City  is  an 
integral  factor. 

From  the  foregoing,  the  importance  of  prompt  telegraphic 
advices  from  continental  correspondents  with  respect  to 
quotations  for  London  checks  in  their  respective  markets 
will  be  readily  perceived,  as  a  neglect  or  delay  in  advising 
their  American  associates  of  fluctuations  may  result  in  loss 
to  the  American  bank  in  the  following  two- fold  manner: 

First.  By  selling  checks  for  exchange  on  the  respective 
country  below  the  adjusted  value,  in  the  event  of  a  decline  for 
London  checks  abroad; 

Second.  Or  by  failing  to  secure  by  purchase  exchange  on 
the  respective  country,  owing  to  having  bid  a  lower  rate  therefor 
than  was  paid  by  a  competitor,  who  had  advance  information 
of  the  enhanced  value,  by  virtue  of  reduction  in  price  for 
London  checks  abroad. 


220        International  Exchange. 

The  American  banker  who  is  not  thoroughly  posted  with 
respect  to  fluctuations  for  London  checks  in  the  European 
continental  markets  through  lack  of  prompt  and  efficient 
service  on  the  part  of  his  foreign  correspondents,  or  the 
unwise  economy  of  avoiding  expense  of  cablegrams  in 
obtaining  this  information  of  paramount  importance  to  him, 
is  not  only  seriously  crippled  in  completing  profitable  "Arbi- 
trage Transactions,"  but  is  also  the  constant  target  for  a 
victim  by  the  numerous  foreign  exchange  brokers  repre- 
senting bankers  desirous  of  buying  and  /  or  selling  exchange, 
as  the  case  may  be,  with  previous  and  full  information  from 
their  foreign  correspondents  affecting  the  value  of  continental 
exchanges  in  this  Country. 

Bills  of  exchange,  payable  in  francs,  drawn  upon  the 
countries  of  France,  Belgium,  and  Switzerland,  are  also 
purchased  in  America  upon  the  basis  of  the  cost  of  pounds^ 
Sterling,  laid  down  in  the  City  of  London  as  hereinbefore 
explained.  The  conversion  of  francs  into  pounds,  Sterling, 
however,  is  not  resorted  to  as  frequently  as  the  process  of 
changing  the  other  continental  exchanges  into  pounds.  Ster- 
ling, for  the  reasons: 

First.  That  exports  to  these  countries  are  not  so  extensive 
as  to  Germany  and  Holland ; 

Second.  That  the  demand  for  bankers'  checks  on  Paris  in 
fact  is  so  great,  that  the  cash  credit  balances  on  the  books  of 
Parisian  correspondents  of  American  banks  for  checking 
purposes,  are  usually  augmented  by  the  transfer  of  funds 
from  the  Belgian  and  Swiss  correspondents  of  American 
associations  in  banking  at  the  current  rate  of  exchange  for 
bankers'  checks  on  Paris  in  Belgium  and  Switzerland,  and, 
for  this  reason,  bills  drawn  upon  these  countries  are  frequently 
purchased  by  American  bankers  upon  the  basis  of  francs  laid 
down  in  Paris,  instead  of  upon  the  basis  of  pounds.  Sterling. 

The  demand  in  America  for  bankers'  checks  on  Paris  is 


Conversion  of  French  Into  English  Money.  221 

occasioned  not  only  for  payment  of  merchandise  imported 
into  the  United  States  from  France,  but  also  for  the  liquida- 
tion of  loans  negotiated  by  American  financiers  through  the 
issuance  of  Finance  Bills  drawn  upon  their  Parisian  confreres. 

Despite  the  foregoing  facts,  there  are  times  when  the 
American  bankers  instruct  their  Paris  banking-houses  to 
transfer  funds  in  their  hands  to  their  London  representatives, 
necessitating  the  conversion  of  francs  into  pounds,  Sterling, 
and  the  cost  of  this  Arbitrage  Transaction,  or,  rather,  the 
parity  of  exchange  in  New  York  for  Paris  cheques,  is  deter- 
mined in  the  manner  following: 

Assume  as  the  basis  of  an  operation  of  this  nature  that 
bankers'  checks  on  London,  payable  in  pounds,  Sterling,  can 
be  sold  in  New  York  City  at  $4.86  per  pound.  Sterling,  and 
that  checks  on  London  can  be  purchased  in  Paris  for  25.18 
francs  per  pound,  Sterling.  Now,  since  25.18  francs  are  the 
equivalent  of  one  pound.  Sterling,  or  $4.86,  one  franc  would 
be  worth  in  the  United  States  as  much  as  25.18  is  contained 
times  in  $4.86,  or  .19301,  and  as  French  exchange  is  expressed 
in  the  amount  of  francs  that  one  dollar  will  purchase,  proceed 
to  divide  one  dollar  by  .19301,  giving  the  quotation  of  5.1811, 
approximately  5.i8>^,  or  the  parity  of  exchange  for  bankers' 
cheques  on  Paris  in  America. 

The  subject  of  the  conversion  of  bills  of  exchange,  drawn 
upon  Holland,  into  the  English  pound.  Sterling,  follows,  and 
in  this  connection  it  may  be  stated  that  Arbitrage  Transac- 
tions, involving  United  States,  Dutch,  and  English  moneys, 
are  probably  more  frequently  resorted  to  than  any  other 
Arbitrage  operations. 

The  Holland  Account  referred  to  the  large  volume  of 
American  products  exported  to  Holland  for  re -shipment  by 
Dutch  merchants  to  the  other  European  countries,  and  in 
consequence  bills  of  exchange,  aggregating   large  sums  of 


222  International  Exchange. 

money  drawn  upon  Holland,  payable  in  florins  or  guilders, 
are  offered  for  sale  to  American  bankers.  The  balances, 
created  on  the  books  of  the  Dutch  bankers  in  favor  of  their 
American  friends  by  the  remittance  of  such  bills,  vastly 
exceed  the  requirements  for  checking  purposes,  and  such 
surplus  funds  are  transferred  to  the  London  correspondents 
of  the  American  banking-houses  by  the  Dutch  bankers. 

The  regularity  and  immensity  of  transactions  of  this  type 
naturally  create  a  broad  market  in  Rotterdam  and  Amsterdam 
for  checks  on  London;  and  the  prices  therefor,  together  with 
the  rate  for  bankers'  checks  on  London  in  New  York  City, 
furnish  the  fundamental  basis  to  determine  the  parity  of 
exchange  for  checks  on  Holland  in  the  United  States  whereon 
Dutch  bills  are  purchased  by  American  banking  associations. 

The  method  of  procedure  to  ascertain  such  parity  is 
identical  with  that  whereby  the  parities  for  checks  on 
Germany  and  France  were  arrived  at,  and  is  confirmed  by 
the  annexed  illustration: 

Consider  that  bankers'  checks  for  the  purpose  at  issue  on 
London  are  quoted  at  $4.86  per  pound,  Sterling,  in  New 
York  City,  and  florins  at  12.07^  in  Rotterdam.  Since 
12.07]^  florins  will  purchase  one  pound,  Sterling,  draft  on 
London  in  Rotterdam,  worth  $4.86  in  the  United  States,  the 
value,  or  parity  of  exchange,  of  one  florin  in  America  would 
be  as  much  as  12.0725  is  contained  times  in  $4.86,  or  40.256, 
approximately  40^  cents. 

The  fact  should  be  remembered  that  all  of  the  foregoing 
illustrations  merely  serve  to  demonstrate  the  manner  whereby 
New  York  parities  of  exchange  for  checks  on  Germany, 
France,  and  Holland  were  obtained,  and  the  American  banker 
purchasing  such  exchange  should  deduct  whatever  percentage 
of  profit  may  be  desired  from  the  parity,  in  buying  bills  of 
exchange  on  the  respective  countries  when  based  upon  Arbitrage 
Transactions. 


American  Prices  When  in  Excess  of  Parities.  223 

The  conclusion  does  not  necessarily  always  follow,  that  the 
profit  or  advantage  is  greater  to  the  American  banker  by  the 
conversion  of  bills  of  exchange,  drawn  upon  Germany,  France, 
or  Holland,  into  pounds,  Sterling,  through  remittance  of 
proceeds  to  his  London  correspondent.  Were  this  the  case, 
bankers  would  never  sell  their  checks  on  these  countries,  but 
instead  would  convert  them  into  pounds,  Sterling,  whereas, 
as  a  matter  of  fact,  large  credit  balances  are  usually  held  by 
the  German  and  French  associates  of  American  banks  to 
protect  American  checks  drawn  upon  and  payable  there. 

There  are  diversified  reasons  why  checks,  drawn  upon  and 
payable  in  the  money  of  the  respective  countries  on  the 
continent,  may  at  times  be  sold  at  prices  in  the  United  States 
in  excess  of  the  parities  of  exchange,  or  in  other  words,  at  a 
higher  price  than  checks  on  London,  drawn  against  funds 
created  through  Arbitrage  Transactions,  based  upon  current 
quotations  for  exchanges  entering  into  the  operation. 

To  explain:  rates  of  exchange,  for  instance,  on  bankers' 
London  checks  in  Germany,  are  frequently  contracted  for  by 
American  bankers  through  their  Berlin  or  Hamburg  repre- 
sentative months  in  advance  for  reasons  to  be  explained 
further  on,  and  should  such  rates  prove  lower,  in  due  course, 
than  current  quotations,  the  American  banker  having 
contracted  for  such  rates  can,  as  a  result  thereof,  afford  to 
pay  a  slight  premium  over  the  parity  of  exchange  and  still 
clear  a  profit  on  the  transaction. 

Illustration:  had  an  American  banker  secured  a  round 
amount  of  Sterling  checks  in  Germany,  on  some  previous 
date,  at  the  rate  of  20.36  marks,  it  follows  that  the  American 
banker  could  afford  to  pay  a  higher  rate  for  checks  on 
Germany  than  the  parity  of  exchange,  namely,  95.388,  based 
upon  the  quotations  of  20.38  marks  and  $4.86  in  the  example 
submitted. 

While  the  practice  of  securing  in  advance,  the  rates  of 


224  International  Exchange. 

exchange  for  Sterling  checks  in  Germany,  just- mentioned, 
may  appear  speculative,  the  object  accomplished  thereby  as 
a  matter  of  fact,  in  many  cases,  is  conservative,  and  may  be 
characterized  as  good  and  safe  banking. 

To  cite  one  instance:  referring  to  Chapter  IX,  devoted  to 
"Foreign  Bills  of  Exchange  Bought  and  Sold  for  Future 
Delivery,"  when  a  conservative  and  not  a  speculative  practice, 
the  text  reads  that  American  bankers  frequently  buy  and 
sell  foreign  exchange  for  future  delivery.  Assume  such 
operations  contracted  for,  the  purchase  of  bills  of  exchange 
in  marks  on  Germany,  and  the  sale  of  Sterling  checks  on 
London. 

The  American  banker  —  instead  of  protecting  himself 
against  possible  loss  on  those  transactions  by  selling  his 
checks  on  Germany  and  buying  Sterling  checks  on  London 
for  the  same  future  dates  of  delivery  as  an  offset — frequently 
conserves  himself  from  loss  by  obtaining  telegraphic  offers 
from  his  German  correspondent  for  quotations  of  checks  on 
London  in  the  equivalent  amount  of  Sterling,  deliverable  on 
like  future  dates,  and  his  acceptance  by  cablegram  closes  the 
contract  therefor,  provided,  of  course,  the  rate  submitted  is 
favorable,  and  the  transaction  can  be  terminated  in  this 
manner  on  a  profitable  basis. 

In  this  case,  suppose  the  American  banker  had  contracted 
for  the  delivery  in  Germany  of  checks  on  London  at  a 
specified  rate  and  future  date,  remittance  would  necessarily 
follow,  in  due  course,  of  the  bills  of  exchange,  payable  in 
marks,  to  his  German  correspondent,  and  the  proceeds  thereof 
would  be  applied  to  the  purchase  of  the  checks  on  London 
previously  contracted  for;  the  American  banker  would  request 
his  German  correspondent  to  forward  the  London  checks  for 
account  and  credit  of  the  American  bank  to  the  London 
banking-house;  then  the  American  banker  would  draw  his 
own  check,  payable  in  London,  in  pounds,  Sterling,  previously 
sold  for  future  delivery,  and  in  so  doing  terminate  the  entire 
transaction. 


Wide  Scope  of  Arbitrations.  225 

The  American  foreign  exchange  banker — having  computed 
the  parities  of  the  various  international  exchanges  at  the 
beginning  of  each  day's  business,  based  on  quotations  received 
by  him  every  morning  from  his  foreign  correspondents — is  in 
a  position  to  determine,  and  in  consequence  decides,  whether 
a  better  profit  would  accrue  from  selling  his  checks,  drawn 
upon  his  continental  correspondents  at  the  current  rate  of 
exchange,  or  by  converting  his  continental  exchanges  into 
pounds.  Sterling,  as  explained  heretofore,  and  issue  and  sell 
there  against  his  American  drafts  on  London. 

The  scope  of  Arbitrage  Transactions  is  most  extended,* 
and  embraces  also  the  conversions  of 

Florins  or  guilders  into  marks ; 

Florins  or  guilders  into  francs ;  and 

Francs  into  marks;  and  vice -versa  operations; 

all,  though  less  frequently  employed,  are  effected  in  precisely 
the  same  manner  as  the  conversions  of  marks,  francs,  and 
florins  into  pounds,  Sterling. 

*  "Arbitrations  and  Parities  of  Foreign  Exchange,"  from  the  pen  of  Mr.  C. 
A.  Stern  of  New  York  City,  will  be  found  a  great  aid  and  convenience  in 
Arbitrage  Transactions ;  and  comprises  conversion  tables,  respectively  of 
Sterling  into  francs,  reichsmark,  and  guilders  ;  guilders  into  reichsmark,  and 
francs  ;  francs  into  guilders,  and  reichsmark  ;  and  reichsmark  into  guilders,  and 
francs. 

The  following  authorities  are  printed  in  the  French  language,  and  covering 
the  subject-matter  of  Arbitrations  in  a  most  thorough  and  exhaustive  manner 
are  of  especial  value  and  interest : 

"Arbitrages  and  Parites"  by  Ottomar  Haupt  (Effingham,  Wilson  «fe  Co., 
London);  and 

"Arbitrages,  Banknotes  et  Monnaies"  by  E.  Kauffmann  (Credit  Lyonnais, 
Paris). 

15 


226       International  Exchange. 

Summary. 
A  clear  understanding  is  absolutely  necessary  of  the  factors 
and  principles  involved  in  solving  the  Arbitrage  Transactions 
submitted;  and  the  first  principles  having  been  mastered, 
other  operations  of  a  similar  nature,  although  expressed  in 
different  rates  of  exchange,  conforming  to  market  quotations, 
should  not  occasion  any  great  difficulty. 

To  present  other  examples:  the  determining  of  the  parities 
of  exchange  in  America  for  checks  on  Germany,  France,  and 
Holland,  based  upon  the  prices  for  checks  on  London  in 
these  respective  countries  in  conjunction  with  the  price  for 
London  checks  in  New  York  City,  confined  within  the  limits 
of  the  maximum  range  between  the  subjoined  gold  and 
bullion  points: 

Checks  on  London  in  Import  Rate:  Export  Rate: 

Germany,         -         -        marks,  20.34  20.52 

France,        .        -        -    francs,  25.12^         25.321^ 

Holland,  -        -        florins,  12.04  12.15 

United  States,     -        -    dollars,    4.84  4.90 

To  conclude:  Arbitrage  Transactions  embrace  a  tri- 
national  base,  especially  interesting  and  most  profitable  to 
the  American  banker;  and  their  bi- international  financial 
conversions  and  tri- international  banking  relations  present 
inviting  and  absorbing  operations  in  the  moneys  and  affairs 
of  three  separate  and  distinct  nations;  and  their  efficient 
execution  demands  the  best  resources  of  the  human  mind 
taxed  with  their  multitude  of  details,  and  the  far-seeing 
vision  of  the  principal  national  money  markets  and  inter- 
national conditions  imperative  in  Arbitrageurs  coupled  with  a 
life-long  training  in  international  exchange. 


Chapter  XXVII. 
GOLD  EXPORTS  AND  IMPORTS. 

THE  chapters  on  "London  Agencies  of  European  Conti- 
nental Institutions,"  on  the  European  accounts,  one 
and  all,  and  on  Arbitrations,  have  reflected  evidence  that 
London  is  the  monetary  centre  of  the  commercial  world,  and 
in  that  capacity  discharges  the  functions  of  a  general  clear- 
ing-house for  international  transactions. 

It  naturally  follows  that  international  trade  balances  must 
necessarily  be  adjusted  with  the  financiers  in  the  English 
metropolis,  and  by  reason  thereof,  the  subject  of  "Gold 
Exports  and  Imports"  will  include  and  be  confined  to  the 
direct  movements  of  the  precious  metal  to  and  from  both 
England  and  the  United  States. 

Bills  of  exchange,  owing  to  their  peculiar  advantages  with 
respect  to  both  safety  and  convenience,  provide  the  best 
agencies  for  liquidating  debts  between  nations,  and  these 
drafts  are  always  employed  unless  the  rates  for  foreign 
exchanges  are  prohibitive,  and  then  international  liquidation 
is  effected  by  the  payment  of  the  requisite  amount  in  gold 
coin  or  bullion. 

The  chief  factor,  fully  presented  in  an  early  chapter,  influ- 
encing the  rates  for  foreign  exchanges,  is  the  supply  and 
demand;  and  in  a  large  measure  such  supply  and  demand 
are  based  upon  exports  and  imports  of  commodities. 

The  exportations  of  American  products  always  assume 
their  largest  proportions  during  the  fall  months  of  the  year, 
and  are  caused  by  the  heavy  shipments  then  of  cotton,  grain 
and  other  cereals,  and  in  conjunction  with  the  usually  high 
rates  of  interest,  caused  by  the  demand  for  money  to  move 
the  crops,  create  a  tendency  to  establish  international  trade 
balances  in  favor  of  the  United  States. 

227 


228  International  Exchange. 

In  explanation  of  a  relatively  high  interest  rate  for  money 
in  the  United  States  as  compared  with  European  financial 
centres,  ordinarily  such  rate  is  conducive  to  and  constitutes 
one  of  the  factors  that  build  up  the  invisible  international 
trade  credit  balance  of  the  United  States  of  America.  Such 
condition,  however,  produces  the  above  effect  only  temporarily, 
that  is,  during  the  currency  of  the  finance  bills,  since  their 
ultimate  liquidation  has  just  the  opposite  effect  more  partic- 
ularly shown  on  a  succeeding  page  of  the  present  Chapter. 

I^oans,  represented  by  finance  bills,  and  their  ultimate 
liquidation  as  an  offset  are  not  of  course  permanent  factors 
creating  the  international  balance,  but  as  the  issuance  of 
these  bills  materially  affects  the  rates  for  foreign  exchanges, 
thereby  indirectly  influencing  the  movements  of  gold  to  and 
from  the  United  States  and  Europe,  mention  must  neces- 
sarily be  made  of  loans  as  temporary  factors. 

Assertion  may  in  a  broad  sense  be  made  that  under  normal 
conditions  the  rates  for  foreign  exchange  during  the  spring 
favor  export  movements  of  gold,  and  the  rates  during  the  fall 
months  tend  toward  its  importation. 

The  official  statistics  of  Gold  Exports  and  Imports  disclose 
that  the  preceding  natural  conditions  do  not  always  prevail; 
indeed,  the  figures  show  the  very  opposite  movements  of  the 
yellow  metal  at  certain  times,  and  such  proof  is  conclusive 
that  other  factors  besides  exports  and  imports  of  commodities 
enter  into  the  causes  that  regulate  the  value  of  foreign 
exchanges. 

These  other  factors  are  not  tabulated  by  the  Bureau  of 
Statistics  at  Washington  since  their  proportions  are  unknown 
to  the  American  government  officials,  and  these  silent  factors 
are  constantly  at  work  building  up  what  is  generally  termed 
the  invisible  balance  in  international  trade  relations. 


Factors  Against  the  United  States.        229 

To  chronicle  the  various  elements  going  to  make  up  this 
invisible  balance,  mention  may  be  made  as  follows  of  those 


Against  the  United  States: 

I.  The  enormous  amount  of  money  annually  expended  by 
American  tourists,  while  sojourning  in  European  countries,  to 
defray  traveling  expenses; 

II.  The  liquidation  of  secured  and  unsecured  loans  negotiated 
by  American  bankers  in  England  and  continental  Europe ; 

III.  The  purchase  by  American  banking  institutions,  other 
corporations,  or  individuals,  of  securities,  or  other  properties, 
in  the  money  markets  of  European  countries; 

IV.  The  payment  of  interest  and /or  dividends  on  American 
securities  and  properties  owned  by  and  so  long  as  title  thereto 
is  vested  in  European  capitalists,  whether  such  investments 
are  actually  held  abroad,  or  retained  in  the  United  States; 

V.  Passenger  and  freight  rates  for  the  cost  of  ocean  voyages 
and  transportation  paid  by  Americans  to  European  steamship 
and  vessel  owners,  respectively;  and 

VI.  Remittances  by  persons  within  the  United  States  to 
their  trans -Atlantic  friends  and  relatives. 


230        International  Exchange. 

The  annexed  factors  tend  to  create  invisible  trade  balances 


In  Favor  of  the  United  States: 

I.  Loans  and  renewals  thereof,  representing  money  borrowed 
by  American  banking  institutions,  other  corporations,  or  indi- 
viduals, of  European  bankers  or  capitalists,  creating  only  a 
temporary  international  balance  in  favor  of  the  United  States 
till  liquidation  of  loan  at  maturity; 

II.  Expenditures  by  foreigners  while  traveling  in  the 
United  States  for  individual  expenses; 

III.  The  purchase  of  American  securities  or  properties  in 
the  American  money  markets  by  European  investors; 

IV.  The  payment  of  interest  and /or  dividends  on  European 
securities  or  properties  owned  by  Americans;  and 

V.  The  remittances  to  emigrants  in  the  United  States  from 
European  countries. 


Reason  for  American  Debit  Balance.        231 

The  factors  comprising  the  invisible  balance  against  the 
United  States  generally  vastly  exceed  in  amount  those  consti- 
tuting the  balance  in  favor  of  the  United  States;  and  there- 
fore the  net  invisible  balance  is  usually  an  international  debit 
balance  of  large  amount.  This  explains  the  reason  why — 
although  international  trade  balances  computed  to  be  in 
favor  of  the  United  States  (or  credit  balances)  by  the  figures 
tabulated  on  the  basis  of  exports  and  imports  by  the  Govern- 
ment officials — the  rates  for  foreign  exchanges  at  times  have 
been  unfavorable  to  this  Country,  resulting  in  large  ship- 
ments of  gold  from  the  American  States  to  Europe. 

The  Mint  Par  of  Exchange  for  one  pound,  Sterling,  or  the 
English  sovereign,  is  $4.8666-!-  in  the  United  States. 

The  cost  of  shipping  gold  to  and  from  New  York  City  and 
London  is  approximately  one-half  per  cent.,  or  2  43/100 
cents  per  pound,  Sterling,  including  the  charges  for  freight, 
insurance,  brokerage,  interest,  and  other  petty  incidental 
expenses.  This  would  make  the  export  rate  $4.8908,  and 
the  import  rate  $4.8422;  as  a  matter  of  fact,  however,  the 
gold  or  bullion  points  can  not  be  accurately  fixed  inasmuch 
as  the  several  charges  for  transportation  and  interest  vary 
and  other  contingencies  arise  affecting  the  prices  whereat 
gold  can  be  profitably  exported  or  imported. 

The  quotations  of  $4.90  and  $4.84  for  the  English  pound. 
Sterling,  ordinarily,  however,  express  the  export  and  import 
points,  respectively. 

In  other  words,  when  checks  on  London  are  selling  in  New 
York  City  at  the  rate  of  $4.90  per  pound,  Sterling,  American 
bankers  having  to  pay  large  amounts  in  London,  find  it 
equally  or  more  profitable  to  liquidate  obligations  by  the 
shipment  of  gold,  instead  of  by  remittance  of  a  check  on 
London;  and  when,  on  the  other  hand,  amounts  are  due 


232  International  Exchange. 

American  bankers  by  London  banks,  the  American  financiers 
find  it  equally  or  more  profitable  to  have  the  gold  shipped  to 
them  from  London  instead  of  selling  their  checks  upon  the 
London  bankers  in  the  open  market  at  the  low  rate  of 
exchange. 

Were  the  sole  factors,  to  be  considered  in  determining  the 
export  and  import  rates  of  exchange  (gold  points),  the 
actual  charges  incurred  in  the  shipment  of  gold  to  and  from 
the  United  States  and  Great  Britain,  the  fixing  of  these  rates 
would  of  course  be  an  easy  matter ;  the  case  is  otherwise. 

The  profitable  importation  of  gold  is  dependent  upon  the 
selling  price  of  gold  coins  or  bullion  in  London,  and  is 
controlled  by  the  action  of  the  Bank  of  England ;  although 
orders  for  purchases  and  sales  ot  the  metal  are  usually 
executed  by  London  bullion  dealers. 

The  Bank  of  England  lowers  or  raises  the  price  of  gold 
according  to  the  condition  of  its  reserves;  and  its  treasury 
usually  contains  a  supply  of  United  States  coin.  The  average 
selling  price  therefor  would  be  about  ^6  shillings,  4  pence, 
per  ounce,  that  is  not  quite  the  United  States  equivalent  of 
the  value  of  United  States  gold,  standard  fineness,  900 
thousandths  fine,  of  one  ounce  worth  $18.60^  in  the  United 
States.  Pure  gold  per  ounce  in  England  brings  84  shillings, 
11.45  pence,  and  pure  gold  per  ounce  in  the  United  States 
$20,672. 

When  therefore  the  Bank  of  England  raises  the  price  for 
gold,  the  cost  of  importing  gold  from  England  to  the  United 
States  will  be  commensurably  increased,  and  an  adjustment 
of  the  rates  of  exchange  must  follow  before  shipments  can  be 
profitably  undertaken. 


Possible  Maximum  Loss  on  Foreign  Exchange.  233 

Exportations  and  importations  of  gold  are  frequently 
accomplished  through  the  shipment  of  what  is  known  as 
commercial  gold  bars,  ranging  in  fineness  from  990  to  998^ 
thousandths  fine,  the  gross  weight  and  fineness  being  stamped 
on  each  bar. 

Commercial  gold  bars  may  be  obtained  from  the  United 
States  Mint  by  paying  therefor  the  equivalent  value  in 
United  States  gold  coin  plus  a  charge  of  4  cents  per  each 

$100. 

Gold  coin  can  always  be  had  at  the  United  States  sub- 
treasury  in  exchange  for  gold  certificates  or  legal  tender 
notes,  and  no  difficulty,  or  obstacle,  is  encountered  by  shippers 
in  securing  requisite  tender  for  gold  bars  for  export.  With 
the  shippers,  it  is  optional  of  course  to  procure  either  United 
States  gold  coin  or  commercial  gold  bars  for  export,  but 
since  the  loss  by  abrasion  of  coined  pieces  practically  offsets 
the  small  charge  exacted  by  the  Government  for  gold  bars, 
these  bars  are  usually  preferred  by  shippers. 

English  sovereigns,  coined  in  gold  of  916^  thousandths 
fine,  may  also  be  employed  for  export  and  import  purposes, 
but  their  use  is  not  frequent. 

The  approximate  one- half  per  cent.,  representing  the  cost 
of  transmitting  gold  to  and  from  England  and  the  United 
States,  naturally  precludes  a  more  frequent  interchange  of 
gold  shipments  between  the  two  countries.  The  margin  of 
about  one  per  cent,  between  the  export  and  import  rates  is 
quite  adequate  to  permit  of  active  play  in  the  fluctuations  in 
rates  for  foreign  exchanges,  all  dependent,  more  or  less,  on 
the  price  for  Sterling  exchange  as  heretofore  mentioned. 

Since  the  extreme  variations  for  prices  of  international 
exchanges  are  necessarily  confined  to  and  are  within  the  gold 
or  bullion  points  expressing  the  rates  whereby  gold  can  be 


234       International  Exchange. 

advantageously  transported  from  one  country  to  another,  the 
possible  maximum  loss,  that  dealers  in  foreign  exchange 
may  sustain,  is  thereby  limited,  as  just  recited,  to  approx- 
imately one  per  cent.,  being  a  risk  much  less  than  merchants 
in  other  pursuits  of  trade  are  obliged  to  assume. 


Chapter  XXVIIL* 

MONETARY  UNITS  AND  MONEYS  OF  ALL 
THE  COUNTRIES  OF  THE  WORLD. 

THE  general  information  given  under  this  Chapter  will  be 
found  very  complete  and  of  especial  value  for  reference. 

The  values  of  the  gold  and  silver  coins  as  herein  given  were 
necessarily  obtained  from  various  statistics  and  publications 
as  compiled  by  Mr.  Howard  K.  Brooks  of  Chicago,  and,  while 
believed  to  be  sufficiently  accurate  for  general  information,  are 
not  intended  for  use  in  commercial  transactions,  since  in  some 
countries  the  values  of  gold  and  silver  coins  fluctuate. 

These  values  are  not  home  value  or  market  value  of  the 
coins,  but  are  intended  to  be  the  actual  mint  value  based  upon 
the  weight  and  fineness  of  the  metals  contained  therein,  at  the 
present  price  of  gold  and  silver  bullion  except  where  otherwise 
stated. 

For  revised  valuations,  compiled  under  date  of  April  i,  1908. 

see  concluding  pages  of  this  Chapter. 

The  Value  of  Foreign  Coins. 

The  actual  or  real  value  of  gold  and  silver  cofns  depends 
upon  the  quantity  of  pure  metal  contained  therein,  and  their 
weight  and  fineness.  Nearly  all  the  coins  contain  alloy  or 
inferior  metal  to  increase  their  durability.  In  international 
transactions,  the  weight  of  the  pure  metal  is  alone  considered, 
not  the  number  or  denominations  expressed  on  the  coins. 

The  weight  and  fineness  of  coins  of  same  denominations 
vary  in  different  countries,  hence  they  are  of  different  value 
or  worth.  The  purchasing  power  of  the  silver  dollar  in  the 
United  States  within  that  Country  is  as  great  for  small  sums 

*  By  permission  from  "Foreign  Exchange,"  by  Mr.  Howard  K.  Brooks. 

235 


236        International  Exchange. 

as  the  gold  dollar,  but  in  other  countries  it  would  only  be 
accepted  for  its  bullion  value.  The  Mexican  dollar,  passed 
for  its  face  value  in  Mexico,  is  v/orth  only  about  fifty  cents  in 
the  United  States. 

Therefore,  in  expressing  the  value  of  coins  of  foreign 
countries  in  the  money  of  the  United  States,  the  task  has 
been  to  estimate  their  present  actual  value  based  upon  the 
present  coining  rate  in  the  United  States.  Their  home  value 
is,  of  course,  much  greater  and  their  market  value  may  be 
more  or  less,  according  to  conditions. 

EUROPE. 

Andorra. 

A  small  Republic  near  the  boundary  line  between  France 
and  Spain;  area,  175  square  miles;  population,  6000;  princi- 
pal city  and  its  population,  Andorra,  600. 

This  Country  has  no  coinage  of  its  own,  and  uses  principally 
the  money  of  France  and  Spain.    Very  little  money  is  required. 

Drafts  should  be  drawn  in  francs. 

Austria-  Hungary. 

An  Empire;  area, 264,5 12  square  miles;  population,  42,694,- 
900;  principal  cities  and  population:  Vienna  (capital),  1,535,- 
000;  Budapest,  582,000;  Prague,  370,000;  Triest,  168,000; 
Lemberg,  132,000;  Briinn,  96,000;  Graz,  115,000;  Szegedin, 
88,000;  Vasarhely,  60,000;  Krakau,  8o,000. 

Unit,  new  system — Krone  or  Crown  =  100  Heller; 

Unit,  old  system — Florin  or  Guilder  =  100  Kreutzers. 

Gold  Coins  and  Value: — Quadruple  Ducat,  $9.16;  Ducat, 
$2.29;  Sovereign,  $6.y6;  Half- Sovereign,  $3.37;  Double 
Ducat,  $4.60;  8 -Florin,  $3.86;  4- Florin,  $1.93;  20- Crown  or 
Krone,  $4,052;  lo-Crown  or  Krone,  $2,026;  Florin  or  Guilder, 
48.2  cents. 


Austria- Hungary.  237 

Silver  Coins  and  Value :  —  Maria  Theresa  Thaler,  5 1  cents ; 
Crown  Thaler,  55  cents;  Specie  Thaler,  36  cents;  Vereins 
Thaler,  36  cents;  2  Florins,  92.4  cents;  Florin,  46.2  cents; 
Gulden,  46  cents;  Crown,  17.4  cents;  Half  Crown,  8.5  cents. 

Minor  Coins: — 20  and  10  Heller  of  nickel,  worth,  nominally, 
4  and  2  cents,  respectively,  and  2  and  i  Heller  of  bronze, 
worth,  nominally,  2/ioths  and  i/io  of  a  cent,  respectively. 

Bank  Notes:—  i,  5, 10,50, 100,500, and  loooFlorinsorGuldens. 

The  new  unit  system  dates  from  1892.  The  new  Krone  is 
equal  to  one -half  the  Florin  of  the  old  system.  The  value 
of  the  Gold  Crown  or  Krone  in  United  States  money  is 
20.3  cents,  and  of  the  Silver  Crown  17.4  cents,  at  United 
States  coining  rate.  During  the  exchange  from  the  old  to 
the  new  system,  the  old  coins  are  accepted  on  the  basis  of  I 
Florin  for  2  Crowns,  i  Kreutzer  for  2  Hellers. 

Drafts  should  be  drawn  in  Kroner. 

Belgium. 

A  Kingdom.  One  of  the  most  densely  populated  coun- 
tries of  the  world;  area,  11,400  square  miles;  population, 
6,236,000;  principal  cities  and  population:  Brussels  (capital), 
525,000;  Antwerp,  260,000;  Ghent,  160,000;  Liege,  162,000. 

Unit — Franc  =  100  Centimes. 

Gold  Coins  and  Value:  — 100  Francs,  $19.30;  50  Francs, 
$9.65;  20  Francs,  $3.86;  10  Francs,  $1.93.  The  value  of  the 
Gold  Franc  is  $19.3,  actual. 

Silver  Coins  and  Value :  —  5  Francs,  93.5  cents;  2  Francs, 
34.7  cents;  50  Centimes,  8.7  cents;  20  Centimes,  3.5  cents. 
The  value  of  the  Silver  Franc  is  17.4  cents  actual,  except  the 
5 -Franc  piece,  which  is  of  greater  fineness. 

Minor  Coins: — 20,  10,  and  5-Centime  pieces  of  nickel  and 
2  and  I  -  Centime  pieces  of  bronze. 

Paper  Money: — Bank  Notes,  issued  by  the  National  Bank 
of  Belgium,  of  20,  50,  lOO,  500,  and  1000  Francs. 

Drafts  should  be  drawn  in  Francs. 


238  International  Exchange. 

Bulgaria. 

A  tributary  Principality  of  Turkey,  situated  on  the  Black 
Sea;  area,  38,563  square  miles ;  population,  3,400,000;  prin- 
cipal cities  and  population:  Sofia  (capital),  47,000;  Philip- 
popolis,  36,000;  Rustchuk,  28,000;  Varna,  28,000. 

Unit — Lew=ioo  Stotinki. 

Gold  Coins  and  Value :  —  50  Lew,  $9.65 ;  20  Lew,  $3.86;  10 
Lew,  $1.93;  5  Lew,  96.5 ;  the  value  of  the  Gold  Lew  is  19.3  cts. 

Silver  Coins  and  Value : — 2  Lew,  34.7  cents;  i  Lew,  17.4 
cents;  50  Stotinki,  d>.y  cents;  20  Stotinki,  3.5  cents;  the 
value  of  the  Silver  Lew  is  17.4  cents. 

Minor  Coins: — 20,  10,  5,  and  2^  pieces  of  nickel. 

Paper  Money: — Notes  issued  by  the  National  Bank  of  Bul- 
garia, and  those  of  the  Imperial  Ottoman  Bank  in  various 
denominations. 

This  Country  has  practically  the  same  monetary  system  as 
France,  with  coins  of  like  value  with  different  names. 

Drafts  should  be  drawn  in  Francs,  Pounds  Sterling,  or 
Marks. 

Denmark. 

A  Kingdom,  situated  just  north  of  Germany  on  the  North 
Sea;  area,  15,300  square  miles;  population,  2,186,000;  prin- 
cipal cities  and  population:  Copenhagen  (capital),  380.000; 
Aarhus,  35,000;  Odense,  32,000. 

Unit — Krone=ioo  Ores. 

Gold  Coins  and  Value : — 20  Kroner,  $5.36;  10  Kroner,  $2.68; 
Double  Christian  d'Or,  7.98;  Christian  d'Or,  $3.94;  Double 
Fredericks  d'Or,  $7.88;  Fredericks  d'Or,  $3.94;  Ducat,  $2.24; 
the  value  of  the  Gold  Crown  or  Krone  is  26.8  cents. 

Silver  Coins  and  Value : — 2  Crowns,  49.9  cents;  i  Crown, 
24.9  cents;  Half  Crown,  50  Ores,  12  cents;  40  Ores,  9  cents. 

Minor  Coins: — 5,  2,  and  i  Ore  pieces  of  bronze;  i  Ore  is 
nominally  worth  ^  of  a  cent. 


Denmark.  239 

Paper  Money: — Bank  Notes  issued  by  the  National  Bank 
of  Denmark  in  denominations  of  i,  5,  10,  100,  500,  and  lOOO 
Kroner  or  Crowns. 

The  coins  and  paper  money  of  this  State  circulate  freely  in 

Norway  and  Sweden. 

Drafts  should  be  drawn  in  Kroner. 

England  —  See  Great  Britain. 

Finland. 
A  Grand  Duchy;  area  and  population  are  included  in  figures 
of   Russia;    principal   cities   and   population:      Helsingfors, 
8000;    Bjorneborg,     10,000;    Uleaborg,    12,000;  Viborg,    or 
Wiborg,  20,000;  Abo,  31.000;  Nikolaief,  92,000. 

Unit — Finmark=ioo  Penni. 

Gold  Coins  and  Value: — 50  FinmarKs,  $9.65;  20  Finmarks, 
$3.86;  10  Finmarks,  $1.93. 

Silver  Coins  and  Value;— 5  FinmarKS,  93.5  cents;  2  Fin- 
marks, 34.7  cents;  i  Finmark,  17.3  cents;  50  Penni,  8.y  cents; 
25  Penni,  4.3  cents. 

Minor  Coins:  — 10  and  5  Penni  of  bronze. 

Russian  money  is  in  general  circulation. 

Drafts  should  be  drawn  in  Finmarks. 

France. 

A  Republic ;  area,  204,100  square  miles;  population,  38,343,- 
200;  principal  cities  and  population:  Paris,  capital,  2,512,000; 
Lyons,  438,000;  Marseilles,  405,000;  Bordeaux,  255,000; 
Lille,  205,000;  Toulouse,  156,000;  St.  Etienne,  135,000; 
Nantes,  125,000;  Havre,  118,000;  Reims,  104,000;  Roubaix, 
115,000. 

Unit — Franc=ioo  Centimes. 

Gold  Coins  and  Value: — 100  Francs,  $19.30;  50  Francs, 
$9.65;  20  Francs,  $3.86;  10  Francs,  $1.93;  5  Francs,  96.5, 
cents;  Louis  d'Or,  $4.50. 


240        International  Exchange. 

Silver  Coins  and  Value : — 5  Francs,  93.5  cents;  2  Francs, 
34.7  cents;  i  Franc,  17.4  cents;  50  Centimes,  8.'/  cents;  20 
Centimes,  3.5  cents. 

Minor  Coins: — 10  and  5  Centime  pieces  of  bronze.  Coins 
of  2  and  I  Centime  pieces  of  bronze  are  also  coined  but  are 
not  in  general  circulation. 

Paper  Money: — Notes  issued  by  the  Bank  of  France  in 
denominations  of  25,  50,  lOO,  500,  and  1,000  Francs. 

The  Gold  Franc  is  worth  19.3  cents,  and  the  Silver  Franc, 
owing  to  its  reduced  fineness,  only  17.4  cents. 

Drafts  should  be  drawn  in  Francs. 

Germany. 

An  Empire;  area,  21 1,168  square  miles;  population,  52,400,- 
000;  principal  cities  and  population:  Berlin,  capital,  1,734,- 
000;  Munich,  408,000;  Hamburg,  682,000;  Leipzig,  395,000; 
Cologne,  330,000;  Dresden,  334,000;  Madgeburg,  242,000; 
Frankfort,  230,000;  Hanover,  210,000;  Breslau,  375,000; 
Bremen,  196,000;  Konigsberg,  East  Prussia,  176,000;  Stutt- 
gart, 160,000. 

Unit — Reichs-Mark=ioo  Pfennig. 

Gold  Coins  and  Value: — 20  Marks,  $4.76;  10  Marks,  $2.38; 
5  Marks,  $1.19. 

Silver  Coins  and  Value: — 5  Marks,  $1.04;  2  Marks,  41.6 
cents;  i  Mark,  20.8  cents ;  50 Pfennig,  10.4 cents;  2oPfennig, 
4.2  cents;  i  Thaler,  71.4  cents;  2  Thalers,  $1.41. 

Minor  Coins:  — 10  and  5  Pfennig  of  nickel  and  2  and  i 
Pfennig  of  bronze,  also  a  20  Pfennig  piece  of  nickel. 

Paper  Money: — Bank  notes  in  denominations  of  5,  lo,  20, 
50,  100,  500,  and  1000  Marks,  and  Government  Notes  of  5, 
10,  and  20  Marks, 

Drafts  should  be  drawn  in  Marks. 


Great  Britain.  241 

Gibraltar. 

A  British  Colony;  situated  on  the  extreme  southern  coast 
of  Spain  at  the  entrance  to  the  Mediterranean  Sea;  no  data, 
as  to  area  or  population ;  principal  city,  Gibraltar. 

This  Country  still  uses  the  Spanish  monetary  system, 
regardless  of  numerous  attempts  to  inaugurate  the  British 
system. 

England,  however,  furnished  bronze  pieces  which  are 
accepted  at  48  to  the  5  Peseta  piece  of  Spain.  British  money 
is  not  refused.  The  Anglo- Egyptian  Bank  has  a  branch 
office  here. 

Drafts  should  be  drawn  in  Pounds,  Sterling. 

Great    Britain. 

Comprises  England,  Ireland,  Scotland  and  Wales ;  King- 
dom; area,  120,980  square  miles;  population,  42,000,000. 

England. 

Principal  cities  and  population :  London,  capital,  4,422,- 
000;  Liverpool,  633,000;  Manchester,  530,000;  Birmingham, 
501,000;  Leeds,  402,000;  Sheffield,  347,000;  Bristol,  334,000; 
Bradford,  229,000;  Nottingham,  230,000;  Hull,  220,000; 
Salford,  211,000;  New  Castle,  212,000;  Leicester,  200,000; 
Portsmouth,  179,000;  Oldham,  138,000. 

Ireland. 
Belfast,  358,000;  Cork,  76,000;  Dublin,  capital,  362,000. 

Scotland. 

Aberdeen,  125,000;  Dundee,  165,000;  Edinburgh,  capital, 
285,000;  Glasgow,  710,000. 

Unit — Sovereign  or  Pound =20  Shillings. 

12  Pence = I  Shilling. 

4  Farthings = I  Penny. 

16 


242        International  Exchange. 

Gold  Coins  and  Value: — 5  Sovereigns,  $24.33;  Double  Sov- 
ereign, $9.73;  Sovereign  or  Pound,  $4,866;  Half  Sovereign, 
$2,433;  5  Guineas,  $25.55;  2  Guineas,  $10.22;  Guinea,  21 
Shillings,  $5.11;  Half  Guinea.  $2.55. 

Silver  Coins  and  Value:  —  Crown,  5  Shillings,  $1,087; 
Double  Florin,  97  cents;  Half  Crown,  54.4  cents;  Florin,  43.5 
cents;  Shilling,  21.7  cents;  Sixpence,  10.8  cents;  Fourpence, 
7.2  cents;  Threepence,  5.4  cents;  Twopence,  3.6cents;  Penny, 
1.8  cents. 

The  4,  2,  and  i  Penny  pieces  are  not  in  general  circulation. 

Minor  Coins:  —  Pence,  Half  Pence,  and  Farthings  of  bronze. 
A  Farthing  equals  about  half  of  i  cent,  United  States  money. 

Bank  Notes  of  i,  5,  10,  20,  50,  100,  200,  300,  500  and  1,000 
Pounds. 

The  nominal  value  of  the  Shilling  is  24^  cents,  and  the 
Penny,  2  1/26  cents. 

Drafts  should  be  drawn  in  Pounds  Sterling. 

Greece. 

A  Kingdom;  situated  on  the  Mediterranean  Sea;  area, 
25,041  square  miles;  population,  2,187,200;  principal  cities 
and  population:  Athens,  capital,  150,000;  Piraeus,  36,000; 
Patras,  36,000. 

Unit — Drachma=ioo  Lepta. 

Gold  Coins  and  Value: — 100  Drachmas,  $19.30;  50  Drach- 
mas, $9.65;  20  Drachmas,  $3.86;  10  Drachmas,  $1.93;  5 
Drachmas,  96.4  cents. 

Silver  Coins  and  Value: — 5  Drachmas,  93.5  cents;  2 
Drachmas,  34.7  cents;  i  Drachma,  17.4  cents;  50  Lepta,  8.7 
cents;  25  Lepta,  4.3  cents. 

Minor  Coins: — 20,  10,  and  5  Lepta  of  nickel. 

Notes   issued   by  three  banks  of  various  denominations. 

Drafts  should  be  drawn  in  Francs,  unless  desired  in 
Pounds  Sterling  or  Marks. 


Italian  Cities.  243 

Holland. 
Same  as  the  Netherlands.     See  Netherlands. 

Ireland — See  Great  Britain. 

Italy. 
A  Kingdom ;  area,  1 1 1,100  square  miles ;  population,  28,500,- 
000;  principal  cities  and  population:  Rome,  capital,  475,000; 
Naples,  525,000;  Milan,  436,000;  Turin,  348,000;  Genoa! 
220.000;  Florence,  205,000;  Venice,  166,000;  Bolognaj 
150,000. 

Unit — Lira=ioo  Centesimi. 

GoldCoinsand  Value:— 100  Lire,  $19.30;  50  Lire,  $9.65; 
20  Lire,  $3.86;   10  Lire,  $1.93;  5  Lire,  96  cents. 

Silver  Coins  and  Value:  — 5  Lire,  93.5  cents;  2  Lire,  34.7 
cents;  i  Lire,  17.4  cents;  50  Centesimi,  S.J  cents;  20  Cen- 
tesimi, 3.5  cents. 

Minor  Coins:  — 10,  5,  2,  and  i   Centesimi  pieces  of  bronze. 

Paper  Money:— Bank  Notes  in  denominations  of  5,  10,  20, 

SO,  100,  250,  500,  and  1000  Lire. 

It  will  be  noted  that  the  money  of  this  Country  is  the  same 
as  that  of  France,  but  has  a  different  name. 

Drafts  should  be  drawn  in  Lire. 

Monaco. 

A  small  Principality;  situated  on  the  southern  coast  of 
France  on  the  Mediterranean  Sea;  area,  8  square  miles; 
population,  13,300;  principal  cities  and  population:  Monaco, 
5000;  Monte  Carlo,  4000. 

Monte  Carlo  is  especially  noted  as  a  resort  for  gambling. 

The  moneys  of  England,  France  and  Germany  circulate,  as 
well  as  the  moneys  of  other  European  countries. 

Drafts  should  be  drawn  in  Francs. 


244  International  Exchange. 

The  Netherlands. 

Same  as  Holland:  a  Kingdom;  area,  12,648  square  miles; 
population,  4,733,000;  principal  cities  and  population:  The 
Hague,  capital,  190,000;  Amsterdam,  490,000;  Rotterdam, 
280,000;  Utrecht,  90,000;  Groningen,  60,000;  Haarlem,  55,- 
000;  Leyden,  45,000. 

Unit — Florin  or  Guilder=ioo  Cents. 

Gold  Coins  and  Value: — 10  Guilders  or  Florins,  $4.02;  5 
Guilders,  $2.01 ;  Double  Ducat,  $4.56;  Ducat,  $2.28. 

Silver  Coins  and  Value: — Rix-Daler,  2^  Florins,  52  cents; 
Florin,  20.8  cents;  Half  Florin,  10.4  cents;  25  Cents,  5.5 
cents;  10  Cents,  3.7  cents;  5  Cents,  1.8  cents. 

Minor  Coins: — 2^,  i,  and  %  Cent  pieces  of  copper. 

Paper  Money: — Issued  by  the  Government  and  banks  in 
denominations  of  25,  40,  60,  100,  200,  300,  and  1000  Florins. 

The  terms  Florin,  Gulden  and  Guilder  are  simply  different 
national  translations  of  the  name  of  the  same  coin. 

Drafts  should  be  drawn  in  Guilders. 

Norway. 
A   Kingdom;    one  of  the   Scandinavian   countries;   area, 
124,445  square  miles;  population,  2,000,000;  principal  cities 
and  population:  Christiania,  capital,  150,000;  Bergen,  60,000; 
Trondhjem,  26,000;  Stavanger,  25,000;  Drammen,  22,000. 

Unit — Krone  or  Crown=ioo  Ores. 

Gold  Coins  and  Value: — 20  Crowns,  $5.36;  10  Crowns,  $2.68; 
Double  Christian  d'Or,  $7.88;  Christian  d'Or,3.94;  Ducat,$2.24. 

Silver  Coins  and  Value : — 2  Crowns,  49.9  cents;  i  Crown, 
29.9  cents;  Half  Krone,  50  Ores,  12  cents;  40  Ores,  9  cents; 
20  Ores,  4  cents;  10  Ores,  2  cents. 

Minor  Coins: — 5,  2,  and  i  Ore  pieces  of  bronze;  the  i  Ore 
piece  is  worth  nominally  }^  of  a  cent. 

Paper  Money: — Notes  issued  by  banks  in  denominations 
of  1,5,  10,  50,  100,  500,  and  1000  Kroner  or  Crowns. 

Drafts  should  be  drawn  in  Kroner. 


CONTOS.  245 

Portugal. 

A  Kingdom;  area,  34,038  square  miles;  population,  4,708,- 
200;  principal  cities  and  population:  Lisbon,  capital,  358,- 
000;  Oporto,  140,000;  Braga,  23,000. 

Unit — Milreis=iooo  Reis. 

Gold  Coins  and  Value: — 10  Milreis  or  Coroa,  $10.80;  5 
Milreis,  or  Half  Coroa,  $5.40;  2  Milreis  or  1/5  Coroa,  $2.16; 
I  Milreis  or  1/20  Coroa,  $1.08. 

Silver  Coins  and  Value :  —  500  Reis,  47.6  cents;  200  Reis, 
19  cents;   100  Reis  or  Testoon,  9.5  cents;  50  Reis,  4.8  cents. 

Minor  Coins: — 40,  20,  10,  5,  and  3  Reis  of  bronze;  the  5 
Reis  piece  is  worth  nominally  ^  of  i  cent. 

Paper  Money: — Notes  issued  by  eight  banks,  the  Bank  of 
Portugal  is  the  principal  one,  of  various  denominations. 

It  is  the  practice  in  Portugal  to  count  large  sums  in  Contos 
or  thousands  of  Milreis,  thus  100  Contos=  100,000  Milreis, 

The  Sovereign  or  Pound  Sterling  of  Great  Britain  passes 
current,  as  does  also  the  gold  coins  of  other  nations. 
Drafts  should  be  drawn  in  Sterling,  Francs,  or  Marks. 

Roumania. 

A  Kingdom;  area,  34,100  square  miles;  population,  4,709,- 
000;  principal  cities  and  population:  Bucharest,  capital,  232,- 
000;  Jassy,  90,000;  Botoshani,  40,000;  Galatz,  81,000;  Crajova, 
30,000;  Ploesti,  34,000. 

Unit    Leu =100  Bani. 

Gold  Coins  and  Value:  —  50  Lei,  $9.65;  20  Lei,  $3.86;  10 
Lei,  $1.93;  5  Lei,  96.5  cents. 

Silver  Coins  and  Value:  — 5  Lei,  87  cents;  2  Lei,  34.8  cents; 
I  Leu,  17.4  cents;  50  Bani,  S.J  cents;  20  Bani,  3.5  cents. 

Minor  Coins:  — 10  and  5  Bani  pieces  of  bronze. 

Notes  issued  by  National  Bank  in  various  denominations. 

This  Country  has  practically  the  same  monetary  system  as 
France,  with  coins  of  same  value,  under  different  names. 

Drafts  should  be  drawp  in  Lei,  Francs,  Sterling,  or  Marks. 


246  International  Exchange. 

Russia. 

("Europe  and  Asia).  An  Empire;  area,  8,660,280  square 
miles;  population,  129,240,000;  principal  cities  and  popula- 
tion: St.  Petersburg,  capital,  1,267,000;  Moscow,  988,000; 
Warsaw,  615,000;  Odessa,  404,600;  Riga,  283,000;  Kharkoff, 
196.000;  Kazan,  138,000;  Kiev,  248,750;  Lodz,  314,700; 
Viina,  160,000. 

Unit — Ruble =100  Copecks. 

Gold  Coins  and  Value : — Imperial,  old,  15  Rubles,  $7.72; 
Half  Imperial,  old,  7^  Rubles,  $3.86;  Ducat,  3  Rubles, 
$2.39;   10  Rubles,  new,  $7.72;  5  Rubles,  new,  ^2i-^^- 

Silver  Coins  and  Value: — Ruble,  50  cents;  Half  Ruble,  25 
cents;  Quarter  Ruble,  25  Copecks,  12.5  cents;  20  Copecks, 
10  cents;  15  Copecks,  y.6  cents;  10  Copecks,  5  cents;  5 
Copecks,  2.5  cents. 

A  Copeck  has  the  nominal  value  of  ^  of  a  cent  in  United 
States  money. 

Minor  Coins: — 5,  2,  and  i  Copeck  pieces  of  copper. 

Paper  Money: — Notes  issued  by  the  Bank  of  Russia  in 
denominations  of  i,  3,  5,  25,  and  100  Rubles. 

Gold  and  silver  are  usually  at  par  with  paper  money. 
Drafts  should  be  drawn  in  Rubles. 

Scotland — See  Great  Britain. 

Servia. 

A  Kingdom;  area,  19,050  square  miles;  population,  2,288,- 
250;  principal  cities  and  population:  Belgrad,  capital, 
59,000;  Nisch,  21,000. 

Unit— Dinar =100  Paras. 

Gold  Coins  and  Value: — Milan  d'Or,  20  Dinars,  $3.86;  10 
Dinars,  $1.93;  5  Dinars,  96.5  cents. 


SeRV;A..  247 

Silver  Coins  and  Value:  —  2  Dinars,  34.7  cents;  i  Dinar, 
17.4  cents;  50  Paras,  S.y  cents;  20  Paras,  3.5  cents. 

Minor  Coins: — 20,  10,  and  5  Paras  of  nickel,  and  10,  5,  and 
I  Paras  of  bronze. 

Paper  Money: — Notes  issued  by  the  National  Bank  of 
Servia. 

This  Country  has  practically  the  same  monetary  system  as 
France,  with  coins  of  same  value  under  different  names. 

Drafts  should  be  drawn  in  Francs,  Pounds  Sterling,  or 
Marks. 

Spain. 

A  Kingdom;  area,  197,670  square  miles;  population, 
17,570,000;  principal  cities  and  population:  Madrid,  capital, 
105,000;  Barcelona,  285,000;  Valencia,  180000;  Seville,  145,- 
000;  Malaga,  140,000;  Murcia,  I00,000. 

Unit — Peseta=ioo  Centimos. 

Gold  Coins  and  Value: — 25  Pesetas,  $4.825 ;  Doubloon,  old, 
$5,017;  50  Pesetas,  $9.65  ;  Alfonso,  $4.78. 

Silver  Coins  and  Value:  —  5  Pesetas  or  Dollar,  87  cents;  2 
Pesetas,  34.8  cents;  Peseta,  ij.d  cents;  50  Centimos,  8.y 
cents;  20  Centimos,  3.5  cents. 

Minor  Coins:  —  5,  2,  and  i  Centime  pieces  of  bronze. 

Paper  Money: — Notes  issued  by  the  Bank  of  Spain  in 
denominations  of  25,  50,  100,  500,  ana  1000  Pesetas. 

Under  former  monetary  system  pieces  called  Escudos  were 
coined,  i  Escudo  being  equal  to  about  2^  of  the  present 
Pesetas.  It  will  be  noticed  that  the  money  of  Spain  is 
similar  to  that  of  France. 

Drafts  should  be  drawn  in  Pesetas,  Francs,  Pounds  Sterling, 
or  Marks. 


248  International  Exchange. 

Sweden. 

A  Kingdom;  area,  172,876  square  miles;  population, 
4,919,250;  principal  cities  and  population:  Stockholm, 
capital,  275,000;  Goteborg,  116,000;  Malmo,  53,300, 

Unit — EjTone  or  Crown =100  Ores. 

Gold  Coins  and  Value: — 20  Crowns,  $5.36;  10  Crowns, 
$2.68;  Ducat,  $2.23. 

Silver  Coins  and  Value  — 2  Crowns,  49.9  cents;  i  Crown, 
24.9  cents;  50  Ores,  12  cents;  40  Ores,  9  cents;  20  Ores,  4 
cents;   10  Ores,  2  cents. 

Minor  Coins:  —  5,  2,  and  i  Ore  pieces  of  bronze.  The  i 
Ore  piece  is  worth,  nominally,  %  of  i  cent. 

Paper  Money: — Notes  issued  by  banks  in  denominations 
of  I,  5,  10,  50,  100,  500,  and  1000  Kroner  or  Crowns. 

The   Krone   and    Crown   are   the   same.     The   monetary 
system  of  Sweden  is  the  same  as  that  of  Norway  and  Denmark. 
Drafts  should  be  drawn  in  Kroner. 

Switzerland. 

A  Republic;  area,  15,976  square  miles;  population,  2,934,- 
000;  principal  cities  and  population:  Berne,  capital,  50,000; 
Basle,  94,000;  Geneva,  84,000;  Zurich,  148,000. 

Unit —  Franc = 100  Centimes. 

Gold  Coins  and  Value:  — 100  Francs,  $19.30;  50  Francs, 
$9.65;  20  Francs,$3.86;  10  Francs,  $1,929;  5  Francs,  96.5  cents. 

Silver  Coins  and  Value: — 5  Francs,  93.5  cents;  2  Francs, 
34.7  cents;  i  Franc,  17.4  cents;  50  Centimes,  S.y  cents;  20 
Centimes,  3.5  cents. 

Minor  Coins: — 5  Centime  piece  of  nickel  and  i  Centime 
piece  of  bronze. 

Paper  Money: — Notes  issued  by  banks  in  denominations 
of  5  Francs  and  upwards. 

The  monetary  system  of  this  Country  is  the  same  as  that 
of  France,  and  its  coins  bear  the  same  names. 

Drafts  should  be  drawn  in  Francs. 


Asia.  249 

Turkey. 

(Europe  and  Asia).  An  Empire;  area,  714,423  square 
miles;  population,  27,694,500;  principal  cities  and  population: 
Constantinople,  capital,  900,000;  Adrianople,  100,000; 
Damascus,  200,000;  Smyrna,  200,000;  Bagdad,  180,000; 
Aleppo,  130,000;  Beyrout,  100,000;  Salonica,  150,000; 
Rhodes,   10,000. 

Unit — Piastre=4o  Paras  of  3  Aspes. 

Gold  Coins  and  Value : — 500  Piastres,  $21.98;  250  Piastres, 
$10.99;  100  Piastres,  $4,396;  50  Piastres,  $2,198;  25  Piastres, 
$1.10.  The  100- Piastre  piece  is  the  Turkish  Pound  or 
Medjidie  or  Lira;  the  500- Piastre  is  the  5 -Pound;  the  250- 
Piastre  is  the  2^ -Pound;  the  50- Piastre  is  the  3^ -Pound, 
and  the  25 -Piastre  is  the  ^- Pound.  The  Pound  is  worth 
$4,396,  and,  it  will  be  noted,  is  considerably  less  than  the 
British  Pound,  Sterling. 

Silver  Coins  and  Value:  —  20  Piastres,  82.8  cents;  10 
Piastres,  41.4  cents;  5  Piastres,  20.7  cents;  2  Piastres,  8,3 
cents;   i  Piastre,  4  cents. 

Minor  Coins: — A  Para  is  equal  to  ii/iooths  of  a  cent,  and 
the  Aspes  is  equal  to  i  i/300ths  of  a  cent.  No  data  as  to  the 
denominations  of  these  coins. 

Paper  Money: — Notes  issued  by  the  Imperial  Ottoman 
Bank,  in  various  denominations  of  Piastres. 

Drafts  should  be  drawn  in  Pounds  Sterling,  Francs,  or  Marks. 

Wales — See  Great  Britain. 

ASIA. 

Aden. 

A  British  port  on  the  southwest  coast  of  Arabia,  near  the 
entrance  to  the  Red  Sea. 

British  money,  or  that  of  Turkey,  would,  no  doubt,  pass 
current. 
Drafts  should  be  drawn  in  Pounds,  Sterling. 


250        International  Exchange. 

Afghanistan. 
An  Empire;  adjoins  India  on  the  northwest;  area,  279,000 
square   miles;    population,   4,000,000;    principal    cities   and 
population:  Kabul,  capital,  70,000;  Kandahar,  60,000;  Herat, 
45,000;  Andkhui,  30,000. 

The  coinage  of  this  Country  has  been  so  small  that  it  may 
be  said  that  it  has  practically  no  coinage.  The  money  of 
account  is  the  Rupee  of  India,  supplied  from  Russia,  India, 
and  Persia.  Russian  and  British  coins  and  paper  money 
circulate. 

Drafts  should  be  drawn  in  Mexican  Dollars,  Pounds  Sterling, 
Francs,  or  Marks. 

Baluchistan. 

An  Empire;  northeast  of  India,  on  the  Arabian  Sea;  area, 
130,000  square  miles;  population,  500,000;  principal  cities 
and  population:  Kelat,  capital,  15,000;  Belar,  10,000. 

This  Country  keeps  its  accounts  in,  and  uses  the  same 
monetary  system  as  India. 

Drafts  should  be  drawn  in  Mexican  Dollars,  Pounds  Sterling, 
Francs,  or  Marks. 

British  India. 

An  Empire;  controlled  by  Great  Britain;  area,  1,568,960 
square  miles;  population,  287,223,400;  principal  cities  and 
population:  Calcutta,  capital,  980,000;  Bombay,  825,000; 
Madras,  455,000;  Hyderabad,  420,000;  Lucknow,  275,000; 
Benares,  225,000;  Delhi,  200,000;  Mandalay,  190,000;  Cawn- 
pore,  190,000;  Agra,  170,000;  Allahabad,  180,000;  Bangalore, 
180,000;  Lahore,  180,000;  Patna,  170,000;  Rangoon,  180,300; 
Karachi,  75,000. 

Unit^Rupee  of  16  Annas=4  Pice  at  3  Pie. 

Gold  Coins  and  Value:  —  Mohur,  15  Rupees,  $7.10;  10 
Rupees,  $4.72;  5  Rupees,  $2.36;  Double  Mohur,  $14.20. 

Silver  Coins  and  Value: — Rupee,  20.6  cents;  Half  Rupee, 


British  India.  251 

10.3  cents;  Quarter  Rupee,  4  Annas,  5.2  cents;  Eighth  Rupee, 
2  Annas,  3  cents.  The  nominal  or  home  value  of  the  Silver 
Rupee  is  about  46  cents. 

Minor  Coins: — Double  Pice  or  Half  Anna,  Pice  or  Quar- 
ter Anna,  Half  Pice  or  Eighth  Anna,  Pie  or  Twelfth  Anna 
pieces  of  copper  or  bronze.  The  Pie  is  worth  less  than 
one- quarter  of  a  cent.  United  States  money. 

Paper  Money:  —  Notes  issued  by  government,  only,  in 
denominations  of  5   Rupees  and  upwards. 

The  states  of  Padukota,  Sindh,  Nepal,  Dewas,  and  Punjab, 
in  India,  still  have  coinage  of  their  own  and  use  their  own 
pieces,  but  coins  of  India  circulate  freely. 

Drafts  should  be  drawn  in  Pounds  Sterling,  or  Mexican 
Dollars. 

Ceylon. 

A  British  colony;  an  Island  off  the  southeast  coast  of 
India;  area,  25,364  square  miles;  population,  3,008,500; 
principal  city:  Colombo,  capital;  population,  127,000. 

Unit — Rupee =100  Cents. 

Gold  Coins: — None  coined. 

Silver  Coins  and  Value: — 50  Cents,  22.2  cents;  25  Cents, 
II. I   cents;   10  Cents,  5.5  cents. 

Minor  Coins:  —  5,  i,  and  ^  Cents  of  copper.  One  hun- 
dred of  these  copper  Cents  are  worth  about  44^  cents, 
United  States  money. 

Paper  Money: — Notes  issued  by  government  in  denomina- 
tions of  5,  10,  50,   100,  500,  and  1000  Rupees. 

Drafts  should  be  drawn  in  Pounds,  Sterling. 


252  International  Exchange. 

China. 

An  extensive  Empire  in  Eastern  Asia;  area,  4,486,700 
square  miles;  population,  402,680,000;  principal  cities  and 
population:  Pekin,  capital,  1,300,000;  Canton,  2,500,000; 
Suchow,  500,000;  Chang-chau,  800,000;  Tientsin,  950,000; 
Hangchau,  800,000;  Woo-Ching,  800,000;  Foo-chow,  650,- 
000;  Shanghai,  475,000;  Chingtu,  800,000:  Chukiang,  700,- 
000;  Hangchau,  800,000;  Hankau,  800,000;  Soochau,  900,- 
000;  Tamsui,  900,000. 

New  Unit — Dollar=ioo  Cents. 
Gold  Coins: — No  gold  coined. 

Silver  Coins: — Dollar,  Half  Dollar,  20-Cent,  lO-Cent,  and 
5 -Cent  pieces.  The  actual  coinage  value  of  these  pieces 
has  not  yet  been  determined,  but  the  Dollar  is  worth  about 
50  cents  in  United  States  money.  The  silver  coins  in  use 
are  the  Mexican  Peso  or  Dollar,  and  smaller  denomina- 
tion pieces,  but  other  silver  coins  are  in  circulation.  Many 
of  the  silver  coins  are  cut  into  pieces,  and,  in  order  to  pass 
current,  are  stamped  or  "chopped"  by  some  well-known 
merchant  or  by  a  local  Governor.  Silver  coins  called  Tael 
are  also  quite  generally  used.  Their  present  value  varies 
according  to  the  locality,  as  follows:  Amoy  Tael,  69.1 
cents;  Canton  Tael,  70  cents;  Chefoo  Tael,  66.1  cents; 
Ching  Kiang  Tael,  67.5  cents;  Fuchau  Tael,  64  cents; 
Haikwan  Tael,  70.3  cents;  Hankow  Tael,  64.7  cents; 
Ningpo  Tael,  66.5  cents;  Shanghai  Tael,  63.1  cents;  Swatow 
Tael,  63.9  cents;  Takau  Tael,  69.9  cents;  Tientsin  Tael, 
6"]  cents.  The  divisions  of  the  Tael  are  nominally:  i 
Tael=io  Mace  of  10  Candareens  or  Fun,  each  Candareen 
being  equal  to  10  Cash  or  Li. 

Minor  Coins: — Pieces  called  Cash  are  coined  of  copper 
and  zinc  with  a  square  hole  in  the  center.  One  thousand 
of  these  are  usually  issued  on  a  string  and  are  worth  about 
$1.02,  or  the  same  as  a  Mexican  Dollar,  or,  nominally, 
i/io  of  a  cent  each. 


China.  253 

Paper  Money: — Notes  issued  by  the  Bank  of  Hong  Kong, 
as  well  as  some  other  foreign  banks,  circulate  freely,  and 
in  some  of  the  provinces  local  banks  are  authorized  to  issue 
notes.     We  have  no  data  as  to  their  denomination. 

Drafts  should  be  drawn  in  Mexican  Dollars,  although  drafts 
in  Pounds,  Sterling,  are  acceptable. 

Corea. 

An  Empire;  area,  85,000 square  miles;  population,  10,529,- 
000;  principal  city:  Seoul,  capital ;  population,  250,000. 

Unit — Yang=ioo  Cash. 

Although  a  mint  has  been  established,  no  coinage  has  as 
yet  taken  place.  The  currency  in  use  consists  of  Japanese 
coins,  Mexican  dollars,  and  copper  "Cash,"  similar  to  those 
of  China,  but  of  less  value.  The  proposed  coinage  will  be 
the  unit  Yang  of  silver,  worth  about  12  cents.  United  States 
money.     Nickel  and  copper  pieces  are  also  to  be  used. 

Drafts  should  be  drawn  in  either  Mexican  or  United  States 
Dollars. 

Dutch  East  Indies. 

Islands  in  the  Pacific  Ocean;  a  Netherland  colony  of 
islands,  comprising  Java,  Sumatra,  and  Borneo,  located  south- 
east of  China;  area,  717,674  square  miles;  population,  32,000,- 
000;  principal  cities  and  population:  Batavia,  Java,  capital, 
110,000;  Samarang,  Java,  72,200;  Surabaya,  Java,  145,600; 
Brunei,  Borneo,  20,000;  Sarawak,  Borneo,  1 8,000;  Benkulen, 
Sumatra,  capital,  40,000. 

Unit — Florin =100  Cents. 

The  monetary  system  of  these  Islands  is  the  same  as  that 
of  the  Netherlands. 

Paper  Money: — Notes  are  issued  by  the  Bank  of  Java. 
Drafts  should  be  drawn  in  Florins  or  Mexican  Dollars. 


254        International  Exchange. 

Hong  Kong. 

A  British  Colony;  an  island  off  the  southeast  coast  of 
China;  area,  30  square  miles;  population,  222,000;  principal 
city,  Victoria,  capital,  population,  144,300. 

Unit — Dollar =100  Cents. 

Gold  Coins: — No  gold  pieces  coined. 

Silver  Coins  and  Value: — Dollar,  49  cents;  Half  Dollar, 
24.5  cents;  20  Cents,  10  cents;  10  Cents,  5  cents;  5  Cents, 
2.5  cents.  The  Mexican  Silver  Dollar  and  divisions  are  in 
general  circulation. 

Minor  Coins: — i  Cent  of  bronze,  A  coin  called  "Cash," 
similar  to  the  Chinese  coin  of  the  same  name,  is  used  to  a 
large  extent.     One  Cash  is  worth,  nominally,  i/io  of  a  cent. 

Paper  Money: — Notes  issued  by  banks  in  denominations 
of  $5  and  upwards.  Notes  of  some  of  the  banks  show  on 
their  face  their  value  in  both  English  and  Chinese  characters. 

Drafts  should  be  drawn  in  Mexican  Dollars  or  Pounds 
Sterling. 

India — See  British  India. 

Indo-China. 

French  Dependency,  comprising  States  of  Anam,  Laos, 
Cambodia,  Tong-King,  and  Cochin  China;  area,  315,122 
square  miles;  population,  22,691,000;  principal  cities  and 
population:  Hue,  capital,  50,000;  Saigon,  90,000;  Hanoi, 
150,000;  Pnom  Penh,  50,000. 

Unit — Piaster =100  Cents . 

Gold  Coins:  —  None, 

Silver  Coins  and  Value: — Piaster,  47.5  cents;  50  Cents,  23.7 
cents;  25  Cents,  1 1.9  cents;  10  Cents,  4.8  cents;  5  Cents,  2.4  cts. 

Minor  Coin: — One  Cent  of  bronze. 

Paper  Money: — Notes  of  various  denominations  in  Piasters 
issued  by  the  French  Bank  of  Indo-China. 

The  money  of  India  and  China,  as  well  as  that  of  France, 
passes  current. 

Drafts  should  be  drawn  in  Mexican  Dollars  or  Francs. 


Islands  of  Japan.  255 

Japan. 

An  Empire,  consisting  of  four  large,  and  many  small 
islands;  area,  162,655  square  miles;  population,  49,307,000; 
principal  cities  and  population:  Tokyo,  capital,  1,370,000; 
Osaka,  490,000;  Kioto,  Saikyo,  328,400;  Nagoya,  206,742; 
Yokohama,  185,000;  Kobe,  158,900. 

Unit — Yen=ioo  Sen. 

Gold  Coins  and  Value: — 20  Yen,  $9.96;  10  Yen,  $4.98;  5 
Yen,  $2.49;    2  Yen,  99.6  cents  ;    Yen,  49.8  cents. 

Minor  Coins: — 5  Sen  pieces  of  nickel,  and  2,  i,  and  Y^  Sen 
pieces  of  copper. 

Paper  Money: — Notes  issued  by  Bank  of  Japan. 

Drafts  should  be  drawn  in  Yen,  or  Pounds  Sterling. 
Java — See  Dutch  East  Indies. 

Korea — See  Corea. 

Nepal. 
A    Kingdom,    situated   northeast   of  India;    area,    54,000 
square   miles;    population,   3,000,000;    principal  city,  Khat- 
mandu,  capital,  population,  50,000. 

No  data  as  to  actual  coinage  in  this  Country,  but  the 
money  principally  in  use  is  that  of  British  India  and  China. 

Drafts  should  be  drawn  in  Pounds  Sterling,  or  Mexican 
Dollars. 

Palestine — See  Turkey. 


256  International  Exchange. 

Persia. 

A  Kingdom ;  area,  630,000  square  miles ;  population, 
9,000,000;  principal  cities  and  population:  Teheran,  capital, 
210,000;  Tabriz,  180,000;  Ispahan,  80,000;  Meshed,  60,000; 
Barfurush,  50,000. 

Unit — Toman=io  Krans  oi  20  Shahis. 

Gold  Coins  and  Value: — 2  Tomans,  $3,409;  i  Tomans,  $1.70; 
Half  Toman,  85  cents. 

Silver  Coins  and  Value: — 5  Krans,  39.5  cents;  2  Krans, 
15.8  cents;  i  Kran,  7,9  cents;  Half  Kran,  3.9  cents;  Quarter 
Kran,  2  cents. 

Minor  Coins:  —  2,  i,  and  Half  Shahis  of  copper.  The 
Shahi  is  worth,  nominally,  i7/20ths  of  a  cent. 

Paper  Money: — Notes  of  i,  2,  3,  5,  10,  20,  25,  50,  100,  500, 
and  1000  Tomans  are  issued  by  the  Imperial  Bank  of  Persia. 

Drafts  should  be  drawn  in  Pounds  Sterling,  Francs,  or  Marks. 

Philippine  Islands. 
Pacific  Ocean.  Until  recently,  a  Spanish  Colony,  but  now 
owned  by  the  United  States.  The  principal  islands  of  this 
group  are  Luzon,  Mindoro,  Negros,  Mindanao,  Cebu,  Panay, 
Leyte,  and  Bohol,  but  there  are  many  other  small  islands, 
two  thousand  in  number;  area,  114,326  square  miles;  popula- 
tion, 8,000,000;  principal  cities  and  population:  Manila,  capital, 
300,000;  Lipa,44,ooo;  Bauan, 36,000;  Batangas, 36,000;  Laoag, 
37,000;  Balayan,  17,000;  Tibi,  14,000;  Albay,  13,000;  Bacolo, 
13,000;  Bulacan,  12,180;  Cebu,  12,000;  Iloilo,  12,000. 

These  Islands  have  no  coinage  of  their  own  but  have  been 
supplied  by  Spain  with  Gold  Dollars,  worth  96.4  cents,  and 
Silver  Dollars  worth  about  52  cents.  Preference,  however, 
is  given  to  the  Mexican  Dollar,  worth  about  50  cents.  Minor 
coins  in  cents  of  bronze  have  also  been  supplied  by  Spanish 
mints.  A  local  bank  at  Manila  issues  bank  notes.  Accounts 
are  kept  in  dollars  and  cents.  The  money  of  the  United 
States  passes  current. 

Drafts  should  be  drawn  in  Mexican  or  United  States  Dollars. 


British  Ports — Singapore  and  Penang.      257 

Russia — See  Russia  in  Europe. 

Slam. 

A  Kingdom;  situated  in  south-eastern  Asia;  area,  220,000 
square  miles;  population,  10,000,000;  principal  cities  and 
population:    Bangkok,  capital,  700,000;   Yuthia,  40,000. 

Unit — Tical=64  Lots  of  100  Cowries. 

The  Tical  is  a  small  bit  of  silver  bearing  a  stamp,  worth 
about  60  cents.  Intermediate  pieces  are,  however,  similar  to 
coins.  Cowries,  made  of  shells,  are  not  now  used,  but  were 
formerly  the  principal  medium.  Small  coins  of  pewter  and 
copper  have  been  introduced  to  take  the  place  of  shells.  The 
equivalents  are:  800  Cowries  equal  i  Faung;  i  Bat  or  Tical 
equals  4  Salungo;  about  6400  Cowries  equal  i  Tical;  220 
Cowries  equal  about  2  cents;  i  Lot  is  equal  to  about  i  cent; 
5  Ticals  are  equal  to  about  $1.50. 

Bank  notes  issued  by  outside  banks  are  in  circulation. 
The  money  of  India  and  Indo- China,  as  well  as  Mexican 
Dollars,  circulate. 

Drafts  should  be  drawn  in  Mexican  Dollars,  or  Pounds 
Sterling. 

Straits  Settlements. 

Islands;  a  British  Colony  of  islands  just  off  the  southern 
coast  of  the  Malay  Peninsula  and  just  east  of  the  Island  of 
Sumatra.  These  islands  are  located  in  the  direct  line  of 
ocean  travel  from  Hong  Kong  and  the  Philippine  Islands  to 
the  Indian  Ocean.  Upon  these  islands  are  located  the 
important  British  ports  of  Singapore  and  Penang. 

The  unit  of  money  in  use  is  the  Dollar  or  100  Cents,  the 
same  as  at  Hong  Kong,  British  money  and  Mexican  Dollars 
are  in  general  use,  but  accounts  are  kept  in  dollars  and  cents. 
The  British  Dollar  used  here  is  rated  the  same  as  the  Mexican 
Dollar,  at  about  50  cents. 

Drafts  should  be  drawn  in  Mexican  Dollars,  or  Pounds 
Sterling. 


Sumatra — See  Dutch  East  Indies. 
Turkey — See  Turkey  in  Europe. 


17 


258  International  Exchange. 

AFRICA. 

Abyssinia. 

An  Italian  Dependency;  situated  in  the  eastern  part  of 
Africa;  area,  462,000  square  miles;  principal  cities  and  popu- 
lation: Ankober,  capital,  10,000;  Gondar,  5,000;  Axum,  5,000. 

This  Country  has  no  mints  of  its  own  but  is  supplied  by 
Italy  with  Silver  Dollars,  and  divisional  pieces  known  as 
Eritrear  Dollars,  as  follows:  Dollar,  Half  Dollar,  Quarter 
Dollar,  and  Tenth  Dollar.  These  pieces  are  worth,  nominally, 
about  93}^,  35,  23^,  and  93^  cents,  respectively.  There  is 
also  in  use  the  Austrian  Maria  Theresa  Thaler  or  Dollar, 
worth,  nominally,  about  $1.03.  British  money  circulates,  as 
does  also  Spanish  money. 

Drafts  should  be  drawn  in  Pounds  Sterling,  Lire,  Francs,  or 
Marks,  as  desired. 

Algeria. 

An  important  French  colony  on  the  north  coast  of  Africa; 
area,  184,474  square  miles;  population,  4,429,421;  principal 
cities  and  population:  Algiers,  capital,  100,000;  Oran,  75,000; 
Bona,  31,000;  Constantine,  46,581;  Tiemcen,  30,000;  Blida, 
25,000;  Gardaia,  30,000;  Mustapha,  25,000;  Ouzon,  26,000. 

Unit — Franc=ioo  Centimes. 

Gold  Coins  and  Value: — 100  Francs,  $19.30;  50  Francs, 
$9.65;  20  Francs,  $3.86;  10  Francs,  $1.93;  5  Francs,  96.5 
cents. 

Silver  Coins  and  Value: — 5  Francs,  93.5  cents;  2  Francs, 
34.7  cents;  i  Franc,  17.4  cents;  50  Centimes,  S.y  cents;  20 
Centimes,  3.5  cents. 

Minor  Coins: — 10  and  5  Centime  pieces  of  bronze.  The 
nominal  value  of  the  5  Centime  piece  is  about  i  cent. 

Paper  Money: — Bank  notes  issued  by  the  Bank  of  Algeria 
in  various  denominations. 

Drafts  should  be  drawn  in  Francs,  or  Pounds  Sterling. 


Cities  in  Cape  Colony.  259 

Angola. 

Portuguese  Colony  on  the  west  coast  of  Africa;  area,  517,- 
000  square  miles;  population,  3,500,000;  principal  city,  St. 
Paul  de  Loanda,  population,  20,000. 

No  data  as  to  coins  in  actual  use,  but  presumably  the 
money  of  Portugal  and  Great  Britain  are  used. 

Drafts  should  be  drawn  in  Pounds  Sterling,  or  Francs,  as 
desired. 

Cape  Colony. 

Cape  of  Good  Hope;  a  British  Colony  on  the  extreme 
southern  coast  of  Africa;  area,  276,925  square  miles;  popula- 
tion, 1,799,900;  principal  cities  and  population:  Cape  Town, 
capital,  84,000;  Kimberley,  30,000;  Port  Elizabeth,  23,266, 

Unit — Pound=2o  Shillings. 

I  Shilling =12  Pence. 

The  gold,  silver,  and  minor  coins  in  use  in  this  Country 
are  the  same  as  in  Great  Britain.  Notes  issued  by  banks 
in  denominations  of  i  Pound,  5  Pounds,  10  Pounds,  and  20 
Pounds. 

The  unorganized  territories  of  Bechuanaland  and  Mashona- 
land  are  under  British  control  and  use  the  money  system  of 
Great  Britain. 

Drafts  should  be  drawn  in  Pounds,  Sterling. 

Cape  of  Good  Hope — See  Cape  Colony. 
Congo  Free  State. 

A  Belgian  Colony;  area,  900,000  square  miles;  population, 
30,000,000;  principal  city,  Boma,  capital,  population  unknown. 

Unit — Franc=ioo  Centimes. 

Gold  Coins:  —  None  coined. 

Silver  Coins  and  Value : — 5,  2,  and  i  and  also  Half  Franc 
pieces  of  the  same  value  as  the  Franc  piece  of  same  denom- 
ination of  France. 

Minor  Coins: — 10,  5,  2,  and  i  Centime  pieces  of  copper. 

Drafts  should  be  drawn  in  Pounds  Sterling,  or  Francs. 


26o  International  Exchange. 

Egypt. 

An  Empire  in  northeastern  Africa;  area,  400,000  square 
miles;  population,  9,654,323;  principal  cities  and  population: 
Cairo,  capital,  576,400;  Alexandria,  319,700;  Damietta,  34,000. 

Unit — Egyptian  Pound=ioo  Piasters  of  10  Ochr-el-guerche. 

Gold  Coins  and  Value: — Pound,  100  Piasters,  $4,943;  Half 
Pound,  50  Piasters,  $2.47;  20  Piasters,  98.8  cents;  10  Piasters, 
49.4  cents;  5  Piasters,  24.7  cents. 

Silver  Coins  and  Value:  —  20  Piasters,  47.2  cents;  10 
Piasters,  23.6  cents;  5  Piasters,  11.3  cents;  2  Piasters,  4.7 
cents;  i  Piaster,  2.9  cents. 

Minor  Coins: — 5,  2,  and  i  Ochr-el-guerches  of  nickel,  and 
Half  and  Quarter  Ochr-el-guerches  of  bronze.  The  Quarter 
piece  is  worth  about  one-eighth  of  a  cent  in  United  States 
money. 

Paper  Money: — None  issued. 

The  gold  coins  of  other  countries  are  accepted  at  their 
value. 

Drafts  should  be  drawn  in  Pounds,  Sterling,  payable  at 
current  rate  on  London. 

Eritrea. 

An  Italian  Colony  on  the  northeast  coast  of  Africa,  bordering 
on  the  Red  Sea;  area,  88,500  square  miles;  population, 
450,000;    principal  city,  Massowah,  population,  9,000. 

This  Country  is  supplied  by  Italy  with  what  are  known  as 
Eritrean  Dollars,  which  are  of  silver,  in  denominations  of 
Dollar,  Half  Dollar,  Quarter  Dollar,  and  Tenth  Dollar,  and 
are  worth  about  93>^,  35,  23^,  and  9^  cents,  respectively. 
British  and  Spanish  money,  as  well  as  the  Silver  Dollar 
known  as  the  Maria  Theresa  Dollar,  are  in  circulation. 

Drafts  should  be  drawn  in  Pounds  Sterling,  or  Lire. 


German  Cities  in  East  Africa.  261 

German  East  Africa. 

A  German  Protectorate  on  the  southeastern  coast  of 
Africa;  area,  380,000  square  miles;  population,  4,000,000; 
principal  cities  and  population:  Dar-es- Salaam,  capital, 
10,000;  Bagamoyo,  13,000;  Kilwa,  10,000. 

This  Country  uses  a  system  much  like  that  of  India,  the 
Rupee,  but  of  100  Cents  or  Pesas.  Silver  coins  are  2,  i. 
Half  and  Quarter  Rupees.  No  data  as  to  value.  Minor 
coins  of  5,  2,  and  i  Cent  or  Pesa  of  bronze. 

Drafts  should  be  drawn  in  Pounds  Sterling,  or  Marks. 
Kongo  Free  State— See  Congo  Free  State. 

Liberia. 

A  Republic;  situated  on  the  western  coast  of  Africa;  area, 
57,000  square  miles;  population,  1,500,000;  principal  cities 
and  population:  Monrovia,  capital,  6,000;  Harper,  9,000; 
Buchnam,  5,000;  Edma,  5,000. 

While  this  Country  is  supposed  to  use  the  same  monetary 
system  as  the  United  States,  the  coins  in  circulation  are  those 
of  neighboring  states.  Paper  money  is  issued  by  the  govern- 
ment only  to  a  limited  extent. 

Drafts  should  be  drawn  in  Pounds  Sterling,  or  United  States 
Dollars. 

Madagascar. 

The  third  largest  island  in  the  world;  a  French  Colony; 
situated  southeast  of  Africa  in  the  Indian  Ocean;  area, 
228,500  square  miles;  population,  3,500,000;  principal  city, 
Antananarivo,  capital,  population,  100,000. 

France  having  obtained  control  of  this  Island,  the  Franc 
has  recently  become  the  prevailing  coin.  The  5 -Franc  piece 
is  known  as  the  Dollar  and  has  supplanted  the  former 
Mexican  Dollar  in  use.  Nominally,  the  unit  is  called  the 
Ariary,  which  is  nearly  like  the  dollar  of  old  Spain.  Cut 
coins  are  largely  in  use,  but  the  Franc  of  France  and  the 
divisional  pieces  of  same,  as  well  as  the  minor  coins  of  France, 
are  becoming  generally  used. 

Drafts  should  be  drawn  in  Francs,  or  Pounds  Sterling. 


262  International  Exchange. 

Morocco. 

An  Empire;  situated  on  the  extreme  northern  coast  of 
Africa;  area,  314,000  square  miles;  population,  8,000,000; 
principal  cities  and  population:  Fez,  capital,  140,000;  Morocco, 
50,000;  Mequinez,  56,000;  Tangier,  30,000;  Tetuan,  25,000. 

Unit— Okia  or  Ounce =4  Blankeels  of  6  Floos  each. 

The  Okia  is  a  silver  piece  worth  about  48.8  cents.  Pieces 
of  5,  2^,  I,  and  Yi  Okias  are  supplied  by  the  mints  at  Paris. 
Six  Floos  are  equal  to  about  2  cents.  United  States  money. 

Drafts  should  be  drawn  in  Pounds  Sterling,  or  Francs. 

Natal. 

A  British  Colony;  situated  in  the  extreme  southeastern 
part  of  Africa,  on  the  Indian  Ocean;  area,  20,850  square 
miles;  population,  544,000;  principal  cities  and  population: 
Durban,  28,000;  Pietermaritzburg,  capital,  21,000. 

The  coins  used  in  this  Country  are  furnished  by  Great 
Britain  and  are  principally  the  silver  and  bronze  coins. 

Bank  notes  are  issued  by  the  Natal  Bank.  Accounts  are 
kept  in  pounds,  shillings,  and  pence. 

Drafts  should  be  drawn  in  Pounds,  Sterling. 

Orange  River  Colony. 

A  British  Colony;  situated  in  the  soutneastern  part  of 
Africa;  area,  52.000  square  miles;  population,  207,500;  prin- 
cipal cities  and  population:  Bloemfontein,  capital,  6,000; 
Jagers  Fontein,  4,000. 

This  Country  uses  the  money  of  Great  Britain,  the  same 
as  in  Natal,  Cape  Colony,  and  the  South  African  Republic 
adjoining.    Accounts  are  kept  in  pounds,  shillings,  and  pence. 

Drafts  should  be  drawn  in  Pounds,  Sterling. 

Reunion. 

An  Island  just  east  of  the  Island  of  Madagascar,  belonging 
to  France.  No  data  as  to  area;  population,  171,731.  This 
Island  uses  the  money  of  France.  Notes  are  issued  by  the 
Bank  of  Reunion.     The  principal  city  is  St.  Denis. 

Drafts  should  be  drawn  in  Francs,  or  Pounds  Sterling. 


Transvaal.  263 

Sierra  Leone. 

A  British  Colony  on  the  northwestern  coast  of  Africa; 
area,  22,000  square  miles;  population,  180,000;  principal 
city,  Freetown,  capital,  population,  30,000. 

The  money  used  in  this  Country  is  principally  the  5 -Franc 
piece  of  France  and  the  divisional  pieces.  Also  the  silver 
and  minor  coins  of  Great  Britain.  French  money  is  most  in 
use  by  reason  of  the  business  relations  with  the  adjoining 
French  Colony  of  Senegal.     No  paper  money  issued. 

Drafts  should  be  drawn  in  Pounds  Sterling,  or  Francs. 

The  Transvaal. 
Or  Transvaal;   a  British  Colony  in  the  southern  part  of 
Africa;    area,    113,642    square    miles;    population,    750,000; 
principal   cities   and    population:    Pretoria,    capital,    12,000; 
Johannesburg,  108,000;  Klerksdorp,  10,000. 

This  Country  uses  the  money  of  England  almost  exclusively 
and  accounts  are  kept  as  in  the  adjoining  states  of  Natal  and 
Cape  Colony.  The  English  system  was  adopted  to  facilitate 
its  commerce  with  the  adjoining  states.  This  is  one  of  the 
principal  gold  producing  countries. 

Drafts  should  be  drawn  in  Pounds,  Sterling. 


Tunis. 

A  French  Protectorate  located  on  the  extreme  northern 
coast  of  Africa  on  the  Mediterranean  Sea;  area,  38,000 
square  miles;  population,  1,500,000;  principal  cities  and 
population:  Tunis,  capital,  153,000;  Sfax,  30,000*  Kairwan, 
15,000;  Sousse,  10,000. 

Old  Unit — Piaster =16  Karobs. 

New  Unit — Franc=ioo  Centimes. 


264        International  Exchange. 

Gold  Coins  and  Value: — 25  Piasters,  $2.89;  20  Francs,  $3.86; 
10  Francs,  $1.93. 

Silver  Coins  and  Value: — 2  Francs,  34.8  cents;  i  Franc, 

17.4  cents;  Half  Franc,  8.7  cents;  20  Centimes,  3.5  cents. 

Minor  Coins: — 10  and  5  Centime  pieces  of  bronze. 

Paper  Money: — Notes  issued  by  Bank  of  Algeria  and  Bank 
of  France  in  various  denominations. 

The  old  unit  of  this  Country,  the  Piaster,  was  equal  to 
about  11^  cents,  United  States  money. 

Drafts  should  be  drawn  in  Francs,  or  Pounds  Sterling. 

Zanzibar. 

British  Protectorate;  an  Island  located  off  the  eastern 
coast  of  Africa,  opposite  German  East  Africa;  area,  985 
square  miles;  population,  200,000;  principal  city,  Zanzibar, 
capital,  population,  30,000. 

Unit — Dollar=ioo  Cents  or  Pesas. 

Gold  Coins  and  Value: — 5  Dollars,  $4.92;  2)^  Dollars,  $2.46. 

Silver  Coins  and  Value:  —  i   Dollar,  49  cents;    50  Cents, 

24.5  cents;  25  Cents,  12  cents. 

Minor  Coins: — Cents  or  Pesas  of  bronze. 

The  Maria  Theresa  Dollar  of  Spain  and  the  Rupee  of  India 
also  circulate  freely. 
Drafts  should  be  drawn  in  Pounds,  Sterling, 


Provinces  in  Australia.  265 

PACIFIC    OCEAN. 

Australia. 

British  Colony;  an  Island  surrounded  by  the  Pacific  and 
Indian  oceans,  located  southeast  of  Asia,  belonging  to  Great 
Britain.  It  is  divided  into  five  provinces  or  states,  as  follows: 
Queensland,  New  South  Wales,  South  Australia,  Victoria, 
and  Western  Australia;  area,  2,946,691  square  miles;  popula- 
tion, 3,310,190;  principal  cities  and  population:  Sydney,  New 
South  Wales,  420,000;  Brisbane,  Queensland,  100,000; 
Adelaide,  South  Australia,  150,000;  Melbourne,  Victoria, 
491,000;  Perth,  West  Australia,  45,000. 

Unit — Pound=2o  Shillings. 

12  Pence=i  Shilling. 

Gold  Coins  and  Value:  —  Sovereign  or  Pound,  $4,866;  Aus- 
tralia Half  Sovereign,  $2.43 ;  5  Guineas,  $25.55 ;  2  Guineas, 
$10.22;  Guinea,  21  Shillings,  $5.11;  Half  Guinea,  $2.55; 
Quarter  Guinea,  $1.27. 

Silver  Coins  and  Value: — Crown,  $1.08;  Half  Crown, 
54.4  cents;  Shilling,  21.7  cents;  Sixpence,  10.8  cents;  Three- 
pence, 5.4  cents. 

Minor  Coins: — Pence,  Halfpence,  and  Farthings  of  bronze. 
Its  Farthing  is  worth  about  half  a  cent  in  United  States  money. 

Paper  Money:  —  Bank  notes  of  various  amounts  in  Pounds, 
Sterling,  are  issued  by  17  different  banks  and  branches.  The 
Silver  Dollar  of  Mexico  is  also  in  general  circulation. 

Drafts  should  be  drawn  in  Pounds,  Sterling. 

Borneo. 

Island;  British  and  Dutch  Colony,  the  northeastern  portion 
being  under  British  control;  area,  286,161  square  miles; 
population,  1,846,000;  principal  cities  and  population:  Brunei, 
20,000;  Sandakan,  7,000;  Sarawak,  20,000. 

The  British  portion  of  this  Island  uses  Dollars  and  Cents, 
the  same  as  the  United  States.  The  Dutch  portion  uses  the 
Florin  or  Guilder,  the  same  as  Java  and  Sumatra. 

Drafts  should  be  drawn  in  Pounds  Sterling,  or  Florins. 


266  International  Exchange. 

Fiji  Islands. 

A  group  of  over  200  islands,  just  east  of  Australia,  under 
control  of  Great  Britain;  area,  7,740  square  miles;  population, 
125,402;  principal  city,  Suva,  capital,  population,  5,000. 

These  islands  use  the  English  Pound,  Shilling,  and  Penny. 
Bank  notes  are  supplied  by  banks  in  Australia, 
Drafts  should  be  drawn  in  Pounds,  Sterling. 

Hawaiian  Islands. 
A  group  of  several  islands  about  2,090  miles  southwest  of 
San   Francisco,  California,  recently  annexed  to  the  United 
States;  area,  6,740  square  miles;  population,  110,000;  prin- 
cipal city,  Honolulu,  capital,  population,  30,000. 

The  money  in  use  in  these  Islands  is  the  same  as  that  in 
use  in  the  United  States. 
Drafts  should  be  drawn  in  United  States  Dollars. 

New  Zealand. 

Islands;  a  British  Colony  of  islands  located  just  west  of 
Australia;  area,  104,471  square  miles;  population,  743,214; 
principal  cities  and  population:  Wellington,  capital,  45,000; 
Auckland,  60,000;  Dunedin,  50,000;  Christchurch,  16,964. 

Unit — Pound =20  Shillings. 

I  Shilling=i2  Pence. 

The  money  used  in  this  Country  is  that  in  use  in  Australia. 

Drafts  should  be  drawn  in  Pounds,  Sterling. 

Tasmania. 

Van  Diemen's  Land;  a  British  Colony  Island  just  south  of 
Australia;  area,  26,385  'square  miles;  population,  150,000; 
principal  cities  and  population:  Hobart,  capital,  36,000; 
Launceston,  25,000. 

Unit — Pound=2o  Shillings. 

I  Shilling=i2  Pence. 

The  money  in  use  is  the  same  as  that  in  Australia. 

Drafts  should  be  drawn  in  Pounds,  Sterling. 


Canadian  Provinces.  267 

NORTH    AMERICA. 
Alaska. 

A  Territory  of  the  United  States;  area,  estimated,  577,398 
square  miles;  population,  100,000;  principal  cities  and  popu- 
lation: Sitka,  capital,  3000;  Juneau,  6000;  Circle  City,  6000; 
St.  Michaels,  and  Weare,  population  unknown. 

Unit— Dollar =100  Cents. 

The  money  of  the  United  States,  as  well  as  that  of  Canada, 
is  in  circulation.  Being  a  great  gold- producing  country  with 
poor  banking  facilities,  gold  dust  is  used  for  local  commercial 
purposes  in  lieu  of  coined  pieces. 

Drafts  should  be  drawn  in  United  States  Dollars. 

Canada. 

An  important  Colony  of  Great  Britain,  comprising  all  of 
British  North  America,  except  Newfoundland  and  Labrador. 
There  are  eight  provinces  or  states,  as  follows:  New  Bruns- 
wick, Quebec,  Ontario,  Manitoba,  British  Columbia,  North- 
west Territories,  Nova  Scotia,  and  Prince  Edward  Island; 
area,  3,619,819  square  miles;  population,  5,371,315;  principal 
cities  and  population:  Toronto,  Ontario,  288,040;  Montreal, 
Quebec,  267,730;  Quebec  City,  capital,  Quebec,  63,000; 
Hamilton,  Ontario,  50,000;  Ottawa,  capital,  Ontario,  45,000; 
St.  John,  New  Brunswick,  40,000;  Halifax,  Nova  Scotia, 
40,000;  Winnipeg,  capital,  Manitoba,  38,100;  Victoria,  British 
Columbia,  20,000;  Vancouver,  British  Columbia,  18,000. 

Unit— Dollar =100  Cents. 

Gold  Coins:  —  No  gold  pieces  have  been  coined,  the  gold 
coins  of  the  United  States  and  Great  Britain  are  used  almost 
exclusively. 

Silver  Coins  and  Value :  —  50  Cents,  44.6  cents;  25  Cents, 
22.3  cents;   10  Cents,  8.9  cents;   5  Cents,  4.5  cents. 

Minor  Coins: — One  Cent  pieces  of  copper. 
Paper  Money: — Notes  issued  by  the  government  and  banks 
of  $1,  $2,  $4,  $5,  $10,  $20,  $50,  $100,  $500,  and  $1000. 


268        International  Exchange, 

The  money  of  the  United  States,  both  gold  and  silver, 
passes  without  discount,  on  all  cities  near  the  border  and  on 
the  Great  Lakes,  and  money  of  England  is,  of  course,  accepted 
at  face  value. 

Draw  drafts  in  United  States  Dollars. 

Labrador. 

A  British  Colony  on  the  east  coast  of  British  North 
America;  area,  25,000  square  miles;  population,  52,000. 

The  money  of  this  Country  is  the  same  as  that  of  New- 
foundland. 
Drafts  should  be  drawn  in  United  States  Dollars. 

Mexico. 

A  Republic;  area,  767,005  square  miles;  population,  12,- 
636,887;  principal  cities  and  population:  Mexico  City, 
capital,  350,000;  Leon,  120,000;  AUende,  118,000;  Guadala- 
jara, 85,000;  Puebla,  91,917;  Guanajuato,  55,000. 

Unit — Peso  or  Dollar=ioo  Centavos  or  Cents. 

Gold  Coins  and  Value : — Doubloon,  $15.53;  Half  Doubloon, 
$776;  Quarter  Doubloon,  $3.88;  Eighth  Doubloon,  $1.94; 
Sixteenth  Doubloon,  Dollar,  98  cents;  20  Pesos,  $19.66;  10 
Pesos,  $9.83;  5  Pesos,  $4,915;  2^  Pesos,  $2,457;  Peso,  98.3 
cents.     The  home  value  of  the  Doubloon  is  $16. 

Silver  Coins  and  Value: — Peso  or  Dollar,  47.4  cents;  Half 
Peso,  50  Centavos,  24  cents;  Quarter  Peso,  25  Centavos,  12 
cents;   10  Centavos,  5  cents;  5  Centavos,  2^  cents. 

Minor  Coins: — 5,  i,  and  ^  Centavo  pieces  of  nickel,  and 
2  and  I  Centavo  pieces  of  copper. 

Paper  Money: — Notes  issued  by  banks  of  usual  denomina- 
tions. 

This  Country  produces  great  quantities  of  silver,  and 
provides  many  other  countries  with  coins  through  its  eleven 
mints.     The  greater  proportion  of  its  coinage  is  exported. 

Drafts  should  be  drawn  in  Mexican  or  United  States  Dollars. 


Cities  in  the  United  States.  269 

Newfoundland. 

A  British  Colony  on  the  east  coast  of  British  North 
America;  area,  42,200  square  miles;  population,  203,500; 
principal  city  and  population:  St.  John's,  capital,  31,142. 

Unit — Dollar=ioo  Cents. 

Gold  Coins  and  Value : — 2  Dollars,  $2.03;  Sovereign,  $4,866. 

Silver  Coins  and  Value:  —  50  Cents,  44.6  cents;  25  Cents, 
22.3  cents;   10  Cents,  8.9  cents;  5  Cents,  4.5  cents. 

Minor  Coins:  —  Cent  pieces  of  copper  and  zinc. 

Paper  Money: — Notes  supplied  by  banks  of  Canada,  and 
of  same  denominations. 

The  Dollar  of  the  United  States,  the  Sovereign  of  England, 
and  the  Spanish  Doubloon  are  full  legal  tender  for  98.5  cents, 
$4.80  and  $15.35,  respectively. 

This  Country  maintains  a  position  of  independence  from 
Canada,  being  under  separate  government  in  direct  communi- 
cation with  England. 

Drafts  should  be  drawn  in  United  States  Dollars. 

United  States. 
A  Republic;  area,  3,602,960  square  miles;  population, 
65,600,000;  principal  cities  and  population:  Washington, 
District  of  Columbia,  capital,  285,000;  Greater  New  York, 
New  York,  2,985,422;  Chicago,  Illinois,  2,000,000;  Philadel- 
phia, Pennsylvania,  1,300,000;  St.  Louis,  Missouri,  600,000; 
Boston,  Massachusetts,  500,000;  Cincinnati,  Ohio,  400,000; 
Buffalo,  New  York,  375,000;  Cleveland,  Ohio,  375,000;  San 
Francisco,  California,  325,000;  Detroit,  Michigan,  300,575; 
New  Orleans,  Louisiana,  300,000;  Pittsburgh,  Pennsylvania, 
?oo,ooo;  Milwaukee,  Wisconsin,  249,290;  Louisville,  Ken- 
tucky, 200,000;  Minneapolis,  Minnesota,  192,833;  Kansas 
City,  Missouri,  160,000;  St.  Paul,  Minnesota,  150,000;  Omaha, 
Nebraska,  150,000. 

Unit — Dollar =100  Cents. 


270       International  Exchange. 

Gold  Coins  and  Value: — Double  Eagle,  $20;  Eagle,  $10; 
Half  Eagle,  $5  ;  Quarter  Eagle,  $2.50;  Dollar,  $1. 

The  actual  value  of  the  Eagle,  Half  Eagle,  and  Quarter 
Eagle,  coined  prior  to  1834,  is,  by  reason  of  greater  weight 
and  fineness,  $10.65,  $5-32,  and  $2.66,  respectively. 

Silver  Coins  and  Value: — Trade  Dollar,  53  cents;  Standard 
Dollar,  $1;  Half  Dollar,  50  cents;  Quarter  Dollar,  25  cents; 
Dime,  10  cents;  Half  Dime,  5  cents;  Three  Cents,  3  cents. 
Silver  coins,  known  as  Souvenir,  Columbian,  or  World's  Fair 
Half  and  Quarter  Dollars  are  worth  50  cents  and  25  cents, 
respectively. 

Minor  Coins: — sand  3  Cent  pieces  of  nickel  and  i  Cent 
pieces  of  nickel  and  copper;  also  2  and  i  Cent  pieces  of 
bronze.  Half  Cent  pieces  of  copper  were  coined  prior  to 
1857. 

Paper  Money: — Notes  issued  by  the  Government  and 
National  Banks  in  denominations  of  i,  2,  5,  10,  20,  50,  100, 
500,  and  1000  Dollars. 

Checks  should  be  drawn  in  United  States  Dollars. 

CENTRAL    AMERICA. 
British  Honduras. 
A  British  Colony  adjoining  Mexico  on  the  southeast;  area» 
7562  square  miles;    population,  31,500;  principal  city,  Belize, 
capital,  population,  6000. 

Unit — Peso  or  Dollar =100  Centavos  or  Cents. 
Gold  Coins: — None  issued. 

Silver  Coins  and  Value: — Peso  or  Dollar,  44.3  cents;  Half 
Dollar,  22.1  cents;  Quarter  Dollar,  11  cents;  10  Cents,  4.4 
cents;  5  Cents,  2.2  cents. 

Minor  Coins: — Cent  pieces  of  bronze. 

Paper  Money: — None  issued. 

Several  attempts  have  been  made  to  introduce  the  British 
monetary  system  without  success. 


British  Honduras.  271 

Gold  coins  of  the  United  States,  and  coins  of  Mexico  and 
Central  American  states,  circulate. 

Drafts  should  be  drawn  in  United  States  or  Mexican  Dollars, 
unless  Sterling  is  preferred. 

Costa  Rica. 

A  Republic;  area,  23,000  square  miles;  population,  295,000; 
principal  cities  and  population:  San  Jose,  capital,  30,000; 
Cartago,  15,000;  Alajuela,  15,000;  Heredia,  15,000. 

Unit — Colon =100  Centavos . 

Gold  Coins  and  Value:  —  Onza  or  Doubloon,  $15,736;  Half 
Onza.  $7,868;  20  Pesos,  $19,295;  20  Colons,  $9.31 ;  10  Colons, 
$4.65  ;  5  Colons,  $2,325  ;  2  Colons,  93  cents;  Colon,  46.5  cents. 

Silver  Coins  and  Value: — 50  Centavos,  44.3  cents;  25 
Centavos,  22.1  cents;  10  Centavos,  8.9  cents;  5  Centavos, 
4.4  cents. 

Minor  Coins: — No  data  as  to  these  coins. 

Paper  Money: — Notes  of  various  denominations  in  Pesos 
issued  by  two  banks. 

Drafts  should  be  drawn  in  United  States  or  Mexican  Dollars. 

Guatemala. 

A  Republic;  area,  49,000  square  miles;  population,  1,501,- 
145;  principal  cities  and  population:  Guatemala,  capital, 
71,527;  Santo  Tomas,  20,000;  Coban,  27,000;  Totonicapan, 

26,000. 

Unit — Peso=ioo  Centavos. 

Gold  Coins  and  Value:  —  20  Pesos,  $19,295;  10  Pesos, 
$9,647;  5  Pesos,  $4,823;  23^  Pesos,  $2.41;  Peso,  96.4  cents; 
Doblon  or  Onza,  $15.93;  Quarter  Doblon  or  Pistole,  $3.88; 
Pistole,  97  cents. 

Silver  Coins  and  Value : — Peso,  42.7  cents;  Half  Peso,  50 
Centavos,  21.3  cents;  25  Centavos,  10.7  cents;  10  Centavos, 
4.3  cents. 


2/2        International  Exchange. 

Minor  Coins:  —  2  and  i  Centavo  pieces  of  bronze. 

Paper  Money: — Notes  of  various  denominations  of  Pesos 
are  issued  by  three  banks. 

American  gold  coin  commands  a  premium. 

Drafts  should  be  drawn  in  United  States  or  Mexican  Dollars. 

Honduras. 

A  Republic;  area,  46,400  square  miles;  population, 432,000; 
principal  cities  and  population:  Tegucigalpa,  capital,  12,600; 
Comayagua,  10,000. 

Unit — Peso=ioo  Centavos. 

Gold  Coins  and  Value: — 20  Pesos,  $10,295;  10  Pesos, 
$9,674;  5   Pesos,  $4,823;  2^  Pesos,  $2.41 ;  Peso,  96.4  cents. 

Silver  Coins  and  Value: — Peso,  42.7  cents;  Half  Peso,  50 
Centavos,  21.3  cents;  25  Centavos,  10.7  cents;  10  Centavos, 
4.3  cents. 

Minor  Coins: — 2  and  i  Centavo  pieces  of  bronze. 

Paper  Money: — No  data. 

Draw  drafts  in  United  States  or  Mexican  Dollars. 

Nicaragua. 

A  Republic;  area,  49,000  square  miles;  population,  380,- 
000;  principal  cities  and  population:  Leon,  60,000;  Granada, 
30,000;  Managua,  capital,  20,000. 

Unit — Peso = 1 00  Centavos. 

Gold  Coins  and  Value:  —  Onza  or  Doubloon,  $15,736;  Half 
Onza,  $7,868;  20  Pesos,  $19,295;  10  Pesos,  $9,647;  5  Pesos, 
$4,823;  2;^  Pesos,  $2.41;  Peso,  96.4  cents. 

Silver  Coins  and  Value:  —  Peso,  42.7  cents;  Half  Peso,  50 
Centavos,  21.3  cents;  Quarter  Peso,  25  Centavos,  10.7  cents; 
10  Centavos,  4.3  cents;  5  Centavos,  2.2  cents. 

Minor  Coins: — 2  and  i  Centavo  pieces  of  bronze. 

Paper  Money: — Notes  issued  by  the  Government  in  various 
denominations  of  Pesos. 

Draw  drafts  in  United  States  or  Mexican  Dollars. 


Bermuda  Islands.  273 

Salvador. 

A  Republic;  area,  8,300  square  miles;  population,  777,895; 
principal  cities  and  population:  Santa  Ana,  33,100;  San 
Salvador,  capital,  30,000. 

Unit — Peso =100  Centavos. 

Gold  Coins  and  Value: — Onza  or  Doubloon,  $15,736;  Half 
Onza,  $7,868;  20  Pesos,  $19,295;  10  Pesos,  $9,647;  5  Pesos, 
$4,823;  2^  Pesos,  $2.41;  Peso,  96.4  cents. 

Silver  Coins  and  Value:  —  Peso,  42.7  cents;  Half  Peso,  50 
Centavos,  21.3  cents;  Quarter  Peso,  25  Centavos,  10.7  cents; 
10  Centavos,  4.3  cents. 

Minor  Coins: — 2  and  i  Centavo  pieces  of  bronze. 

Paper  Money: — No  data. 

Draw  drafts  in  United  States  or  Mexican  Dollars. 

ATLANTIC    OCEAN. 

The  Bermudas— Bermuda  Islands. 

A  British  Colony  of  Islands  in  the  Atlantic  Ocean  due  east 

from  North  Carolina,   United  States  of  America;   area,  20 

square    miles;    population,    15,794;    principal    city,    capital, 

Hamilton,  population,  1500. 

Unit — Pound  =  20  Shillings,      i  Shilling =12  Pence. 

Although  the  unit  of  money  is  the  same  as  Great  Britain, 
accounts  are  still  kept  in  dollars  and  cents.  United  States 
gold  coirs  are  accepted  everywhere  and  the  British  gold  and 
silver  coins  are  in  circulation.  A  silver  British  Four- Penny 
piece  called  Groat  is  supplied  by  Great  Britain,  its  nominal 
value  being  about  8  cents.  Paper  money  is  supplied  by  the 
Nassau  Bank  of  Nassau  at  Bahama,  and  by  the  Colonial 
Bank  at  Jamaica. 

The  Bermudas  comprise  a  group  of  about  300  islands  of 
coral  formation,  but  of  these  twelve  are  inhabited  only. 

Drafts  should  be  drawn  in  United  States  Dollars,  or  Pounds, 
Sterling. 
18 


2/4  International  Exchange. 

Cape  Verde  Islands. 

A  group  of  about  lO  islands  off  the  west  coast  of  Africa 
belonging  to  Portugal;  area,  1650  square  miles;  population 
(1885),  110,930.  The  principal  cities  are  Port  Praya  on 
Santiago  Island,  Luzon  on  Fogo  Island,  Mindello  on  Santa 
Vincente  Island,  Boavista  on  Boavista  Island. 

These  Islands  use,  principally,  the  money  of  Portugal, 
although  those  near  Africa  use  the  Rupee  and  coins  in  use  in 
Zanzibar.  There  is  also  in  use  a  coin  called  "Barinha,"  worth 
in  United  States  money  about  three  cents,  and  in  the  western 
islands  a  piece  called  "Macuta,"  worth  about  five  cents. 

Draw  drafts  in  Pounds  Sterling,  Francs,  or  Marks. 

Saint  Helena  Island. 

An  Island  in  mid -ocean,  southwest  of  Africa,  controlled 
by  Great  Britain.  It  is  situated  in  the  direct  line  for  vessels 
passing  around  the  Cape  of  Good  Hope,  and  is  a  valuable 
naval  station.  It  is  especially  notable  by  reacon  of  its  being 
the  place  of  Napoleon's  exile  and  death,  18 15-21. 

All  kinds  of  money  pass,  but  British  money  alone  is  legal 
tender.  No  notes  are  issued  and  little  gold  is  used.  The 
principal  city  is  Jamestown.  No  data  as  to  area  and 
population. 

Draw  drafts  in  Pounds,  Sterling. 

WEST    INDIES— ISLANDS. 

Anguilla  Island. 

One  of  the  Leeward  Islands  of  the  West  Indies  group, 
east  of  Porto  Rico,  under  British  control,  having  an  area  of 
about  100  square  miles,  and  a  population  of  about  20,000; 
principal  city,  Arena. 

Unit — Pound=2o  Shillings. 

I  Shilling =12  Pence. 


f 


Anguilla  Island.  275 

Accounts  are  kept  in  Dollars  and  Cents,  although  British 
gold,  silver,  and  minor  coins  are  in  circulation.  Gold  coins 
of  the  United  States  are  accepted  everywhere.  English 
mints  also  supply  a  Four- Penny  piece  called  "Groat,"  equal 
to  about  8  cents.  No  data  as  to  paper  money,  but,  presum- 
ably, the  banks  at  Nassau,  at  Bahama,  and  the  Colonial  Bank 
at  Jamaica  furnish  notes,  as  is  the  case  with  other  islands 
in  the  British  West  Indies. 

Draw  drafts  in  Pounds  Sterling,  or  United  States  Dollars. 

Bahama  Islands. 

A  group  of  about  20  islands  ofif  the  east  coast  of  Florida, 
United  States  of  America,  under  control  of  Great  Britain; 
area,  5450  square  miles;  population,  47,565;  principal  city 
and  capital,  Nassau,  on  the  Island  of  New  Providence,  popu- 
lation, 11,000. 

The  unit  of  money  is  the  same  as  that  of  Great  Britain, 
although  accounts  are  kept  in  Dollars  and  Cents.  British 
silver  pieces  are  in  general  circulation.  United  States  gold 
coins  are  accepted  everywhere  and  silver  coins,  too,  at  their 
actual  value.  English  mints  supply  a  silver  piece  called 
"Groat,"  worth  about  8  cents  in  United  States  money.  Paper 
money  is  supplied  by  the  bank  at  Nassau. 

Drafts  should  be  drawn  in  Pounds  Sterling,  or  United  States 
Dollars. 

Barbadoes. 

A  British  Colony,  one  of  the  Leeward  Islands,  just  east  of 
Porto  Rico;  area,  166  square  miles;  population,  182,306; 
principal  city,  Bridgetown,  capital,  population,  25,000. 

The  same  monetary  conditions  as  at  Bahama  Islands. 
Draw  drafts  in  Pounds  Sterling,  or  United  States  Dollars. 


2/6  International  Exchange. 

Cuba. 

Formerly  a  Spanish  possession,  but  now  under  the  control 
of  the  United  States;  area,  41,655  square  miles;  population, 
1,730,000;  principal  cities  and  population:  Havana,  capital, 
200,448;  Pinar  del  Rio,  30,000;  Matanzas,  56,379;  Cardenas, 
23,354;  Puerto  Principe,  49,000;  Sancti  Spiritus — Esperitu, 
29,278;  Cienfuegos,  40,964;  Sagua  la  Grande,  18,830;  Santa 
Clara,  32,491 ;  Trinidad,  29,448;  Santiago  de  Cuba,  71,000.  j^ 

Unit: — The  money  of  account  is  the  Peso  =  8  Reals, 
although  the  actual  unit  prior  to  the  transfer  of  the  Island  to 
the  United  States  was  the  Spanish  Peseta=ioo  Centimos. 
On  account  of  the  new  conditions,  accounts  will,  no  doubt, 
soon  be  kept  in  Dollars  and  Cents  of  the  United  States. 

Gold  Coins  and  Value: — Centeen,  $5.02;  Quadruple  Onza, 
$15,736;  Isabelle  Doubloon,  $5.02;  Alfonso,  25  Pesetas, 
$4,83 ;  Peso,  92.6  cents. 

Silver  Coins  and  Value: — Peso,  49  cents;  Half  Peso,  24^ 
cents;    Quarter   Peso,    12   cents;    10  Centimos,    6  cents;    5  y 

Centimos,  3  cents. 

Minor  Coins:  —  5,  2,  and  i  Centimo  pieces  of  bronze. 

Paper  Money: — Small  notes  issued  by  Cuban  banks;  paper 
money  of  Spain  in  Pesetas  is  also  in  circulation. 

The  money  of  the  United  States  now  passes  almost  every- 
where, gold  coins  being  especially  acceptable. 

Draw  drafts  in  United  States  Dollars. 

Guadeloupe. 
A  group  of  Islands  lying  southeast  of  Porto  Rico,  con- 
trolled by  France;  area,  722  square  miles;  population,  166,- 
000;  principal  city,  Basse  Terre,  population,  8790. 

These  Islands  use  the  French  monetary  system,  the  Franc 
=  100  Centimes.  Gold  is  not  in  general  circulation.  For 
silver  and  minor  coins,  see  France.  Notes  are  issued  by 
banks  in  Francs  in  denominations  of  5,  25,  100,  and  500. 

Draw  drafts  in  Francs. 


The  Haytian  Gourde.  277 

Hayti — Haiti. 

A  Franco -American  Republic,  occupying  the  west  portion 
of  the  Island  of  Hayti  or  San  Domingo,  and  located  just  east 
of  the  Island  of  Cuba;  area,  10,204  square  miles;  population, 
960,000;  principal  city  and  population:  Port  au  Prince, 
capital,  60,000. 

Unit — Gourde =100  Cents. 

Gold  Coins  and  Value: — Although  very  little,  if  any,  gold 
has  been  coined,  the  pieces  provided  for  are  as  follows:  10 
Gourdes,  $9.65;  5  Gourdes,  $4,825;  2  Gourdes,  $1.93; 
Gourde,  96.5  cents. 

Silver  Coins  and  Value: — Gourde,  ^7  cents;  50  Cents, 
43.5  cents;  20  Cents,  17.4  cents;  10  Cents,  8.7  cents;  5  Cents, 
4.3  cents. 

Minor  Coins: — 5 -Cent  piece  of  nickel,  and  i-Cent  piece 
of  bronze. 

Paper  Money: — Notes  issued  by  the  National  Bank  of 
Hayti  and  by  the  Government  in  usual  denominations  in 
Gourdes. 

The  gold  coins  of  the  United  States  are  acceptable  every- 
where. 

Inhabitants  mostly  colored.  Mexican  Silver  Dollars  are 
rated  at  about  50  cents. 

Draw  drafts  in  United  States  Dollars,  or  Francs. 

Jamaica. 
Island;  a  British  Colony  lying  just  south  of  Cuba;  area, 
4,207  square  miles;  population,  639,500;  principal  city  and 
population:   Kingston,  capital,  46,542. 

Unit — Pound =20  Shillings. 

12  Pence = I  Shilling. 

4  Farthings = I  Penny. 

The  gold  coins  principally  in  use  are  those  of  the  United 


2/8  International  Exchange. 

States,  aiic  are  held  by  banks  in  their  reserve.     British  gold 
coins  are  of  course  acceptable,  and  to  some  extent  used. 

The  active  silver  coins  in  circulation  are  British,  see  Great 
Britain,  although  th  .  Mexican  Peso  or  Dollar  is  quite 
generally  used. 

Minor  coins  are  Pence  and  Half  Pence  of  bronze. 

Paper  money  is  issued  by  the  Colonial  Bank. 

Draw  drafts  in  Pounds  Sterling,  or  United  States  Dollars. 

Martinique. 

A  French  Island  located  southeast  of  Porto  Rico;  area, 
381  square  miles;  population,  175,500;  principal  city,  Saint 
Pierre,  capital,  population,  25,382. 

Unit — Franc=ioo  Centimes. 

This  Island  uses  the  money  of  France  almost  exclusively, 
although  gold  coins  of  the  United  States  and  Great  Britain 
are  acceptable. 

Draw  drafts  in  Francs,  or  United  States  Dollars. 

Porto  Rico. 

Island;  recently  acquired  by  the  United  States,  formerly 
belonging  to  Spain;  area,  3550  square  miles;  population, 
813,937;  principal  cities  and  population:  Ponce,  38,000;  San 
Juan,  30,000. 

Old  Unit — Peseta=ioo  Centimos. 

New  Unit — United  States  Dollar =100  Cents. 

Owing  to  the  short  period  in  which  this  Island  has  been  in 
the  possession  of  the  United  States,  most  accounts  are  still 
kept  in  the  Spanish  Peseta,  and  Spanish  money  is  still  quite 
generally  used,  see  Spain.  The  money  of  the  United  States 
will  now  be  found  in  all  sections  of  the  Island,  and  passes 
current.  The  value  of  the  silver  Peseta  is  about  19  cents. 
Paper  money,  both  Spanish  and  the  United  States,  is  used. 

Draw  drafts  in  United  States  Dollars. 


Cities  in  Argentina.  279 

Santo  Domingo. 

Island;  a  Republic,  occupying  the  eastern  portion  of  the 
Island  of  Haiti;  area,  18,045  square  miles;  population,  610,- 
000;  principal  cities  and  population:  Santo  Domingo,  capital, 
25,000;  Puerto  Plata,  15,000;  Santiago,  10,000. 

Unit — Dollar=ioo  Cents. 

The  coins  in  use  are  the  same  as  in  the  United  States,  but 
of  less  actual  value.  Mexican  coins,  as  well  as  Spanish,  are 
in  general  circulation.  The  Mexican  Silver  Dollar  is  rated 
at  about  fifty  cents.  Bank  notes  are  issued  by  the  National 
Bank  of  Santo  Domingo.  A  very  small  amount  of  money  is 
needed  or  used.     Inhabitants  principally  colored. 

Draw  drafts  in  United  States  Dollars. 

SOUTH     AMERICA. 

Argentine  Republic— Argentina. 

A  Republic,  one  of  the  most  prosperous  in  South  America; 
area,  1,500,000  square  miles;  population,  5,200,000;  principal 
cities  and  population:  Buenos  Ayres,  capital,  675,000;  C6r- 
doba,  66,000;  Rosario,  100,000;  La  Plata,  70,000;  Tucuman, 
40,000. 

Unit — Peso=ioo  Centavos. 

Gold  Coins  and  Value : — Argentino,  5  Pesos,  $4,824;  Half 
Argentino,  2^  Pesos,  $2,412. 

Silver  Coins  and  Value  (Estimated): — Peso,  50  cents;  50 
Centavos,  25  cents;  20  Centavos,  10  cents;  10  Centavos,  5 
cents;  5  Centavos,  2.5  cents. 

Minor  Coins: — 5,  2,  and  i  Centavo  pieces. 

Paper  Money: — Notes  issued  by  Government  and  banks. 

Draw  drafts  in  United  States  Dollars,  New  York  exchange, 
unless  desired  in  other  money. 


28o        International  Exchange. 

British  Guiana. 
A  British  Colony  on  northeast  coast  of  South  America; 
area,    109,000  square   miles;  population,    283,278;  principal 
city  and  population:  Georgetown,  capital,  55,000. 

This  Colony  uses  the  money  of  Great  Britain,  but  accounts 
are  generally  kept  in  dollars  and  cents.  A  Four -Penny  piece 
of  silver,  worth  nominally  8  cents,  is  supplied  by  Great 
Britain. 

Draw  drafts  in  United  States  Dollars,  New  York  exchange, 
or  Pounds  Sterling. 

Bolivia. 

A  Republic,  situated  in  the  western  part  of  South  America; 
area,  567,431  square  miles;  population,  2,500,000;  principal 
cities  and  population:  Sucre,  capital,  40,000;  La  Paz,  80,000; 
Cochabamba,  50,000;  Potosi,  20,000. 

Unit — Boliviano=ioo  Centavos. 

Gold  Coins  and  Value: — Doubloon,  $15.60. 

Silver  Coins  and  Value: — Boliviano,  42.7  cents;  50  Centavos, 
21.3  cents;  20  Centavos,  8.5  cents;  10  Centavos,  4.3  cents; 
5  Centavos,  2.2  cents. 

Minor  Coins:  —  5  Centavo  piece  of  nickel  and  i  Centavo 
piece  of  copper  or  bronze. 

Paper  Money: — Notes  issued  by  banks  in  various  denomi- 
nations of  Bolivianos. 

The  home  value  of  the  Boliviano  is  the  same  as  the  Dollar 
of  the  United  States,  and  the  50,  20,  10,  and  5  Centavo 
pieces  the  same  as  coins  of  like  denomination  in  the  United 
States. 

Draw  drafts  in  United  States  Dollars,  New  York  exchange, 
unless  preferred  in  other  money. 


Cities  in  Brazil.  281 


Brazil. 

The  largest  of  South  American  republics;  area,  3,209,878 
square  miles;  population,  18,000,000;  principal  cities  and 
population:  Rio  de  Janeiro,  capital,  800,000;  Bahia,  200,000; 
Pernambuco,  190,000;  Para  (Belem),  70,000;  San  Paulo. 
100,000. 

Unit — Milreis=iooo  Reis. 

The  Republic  adheres  to  the  monetary  system  of  Portugal, 
except  that  its  unit,  the  Milreis,  is  only  half  the  value  of  that 
of  Portugal. 

Gold  Coins  and  Value: — 20  Milreis,  $10.92;  10  Milreis, 
$5.46;  5  Milreis,  $2.73.  The  value  of  the  Gold  Milreis  is 
54.6  cents;  Moidore,  old,  $4.93;  Half  Joe,  old,  $8.73. 

Silver  Coins  and  Value: — 2  Milreis,  97  cents;  i  Milreis, 
48.5  cents;  Half  Milreis,  24.2  cents;  Double  Pataca,  35  cents; 
500  Reis,  12  cents. 

Minor  Coins: — 200  and  100  Reis,  nickel,  and  40  Reis  of 
bronze. 

Paper  Money: — Notes  issued  by  the  Government  and  Bank 
of  Republic  of  Brazil. 

Gold  usually  commands  a  high  premium. 

Draw  drafts  in  United  States  Dollars,  New  York  exchange, 
unless  preferred  in  other  money. 


282  International  Exchange. 

Chili. 

A  Republic,  lying  on  the  southwest  coast  of  South  America, 
between  the  Andes  Mountains  and  the  Pacific  Ocean;  area, 
293,970  square  miles;  population,  3,500,000;  principal  cities 
and  population :  Santiago,  capital,  250,000 ;  Valparaiso, 
104,952;  Concepcion,  25,000;  Talca,  23,432;  Chilian,  25,000. 

Unit — Peso =100  Centavos. 

Gold  Coins  and  Value :  —  Condor,  10  Pesos,  $7.30;  Half 
Condor,  or  Doubloon,  $3.65 ;  Fifth  Condor,  or  Escudo,  $1,825  5 
Peso,  36.5  cents.     Gold  usually  commands  a  high  premium. 

Silver  Coins  and  Value  (Estimated): — Peso,  48  cents;  Half 
Peso,  24  cents;  20  Centavos,  9  cents;  Decimo,  5  cents; 
Media  Decimo,  3  cents. 

Paper  Money:  —  Notes  issued  by  the  Government  and 
banks  in  various  denominations  of  Pesos. 

Draw  drafts  in  United  States  Dollars,  New  York  exchange, 
unless  preferred  in  other  money. 

Colombia. 

A  Republic,  in  the  extreme  northwestern  part  of  South 
America,  and  includes  the  Isthmus  of  Panama;  area,  504,773 
square  miles;  population,  3,878,600;  principal  cities  and 
population:  Bogota,  its  capital,  110,000;  Medellia,  50,000; 
Panama,  30,000;  Barranquilla,  20,000;  Popayan,  20,000. 

Unit — Peso = 1 00  Centavos . 

Gold  Coins  and  Value: — Condor,  $9,647;  Double  Condor, 
$19,295;  Doubloon,  $15.62;  Half  Doubloon,  $7.60;  Quarter 
Doubloon,  $3.80. 

Silver  Coins  and  Value: — Peso,  42.7  cents;  50  Centavos, 
21.3  cents;  25  Centavos,  10.7  cents;  10  Centavos, 4.3  cents; 
5  Centavos,  2.2  cents. 

Minor  Coins: — 5,  i,  and  J^  Centavos  of  nickel. 

Paper  Money: — Notes  issued  by  banks  in  denominations 
of  5,  10,  50,  100,  and  500  Pesos. 

Draw  drafts  in  United  States  Dollars,  New  York  exchange. 


Cities  in  Ecuador.  283 

Ecuador. 

A  Republic;  so  called  by  reason  of  being  situated  on  the 
Equator;  area,  155,000  square  miles;  population,  1,300,000; 
principal  cities  and  population:  Quito,  capital,  80,000; 
Guayaquil,  50,000;  Cuenca,  30,000. 

Unit— Sucre =100  Centavos. 

Gold  Coins  and  Value:  —  Condor,  $9,647;  Double  Condor, 

$19,294. 

Silver  Coins  and  Value: — Sucre,  42.7  cents;  50  Centavos, 
21.3  cents;  20  Centavos,  8.5  cents;   10  Centavos,  4.3  cents. 

Minor  Coins:  —  5,  2,  and  ^  Centavo  pieces  of  nickel,  and 
2  and  I  Centavo  pieces  of  bronze. 

Paper  Money: — Notes  issued  by  banks  in  several  denomi- 
nations of  Pesos. 

Draw  drafts  in  United  States  Dollars,  New  York  exchange. 

French  Guiana. 

A  French  Colony  on  northeast  coast  of  South  America; 
area,  30,000  square  miles;  population,  25,796;  principal 
city  and  population,  Cayenne,  capital,  10,600. 

Unit —  Franc =100  Centimes. 

Although  this  Country  uses  the  French  monetary  system, 
accounts  are  kept  in  dollars  and  cents,  as  in  most  South 
American  countries.  Very  little  money  is  used.  For  list  of 
coins,  see  those  of  France. 

Draw  drafts  in  United  States  Dollars,  or  Francs. 
Guiana — See  French  and  British  Guiana. 


284  International  Exchange. 


Paraguay. 

A  Republic  in  the  southern  part  of  South  America ;  area, 
95,000  square  miles;  population,  600,000;  principal  cities  and 
population:  Asuncion,  capital,  35,000;  Zuque,  20,000;  Care- 
pegui,  15,000. 

Unit — Peso=8  Reals. 

All  kinds  of  South  American  money  circulate  in  this 
interior  State,  although  very  little  is  used.  Money  of  Brazil 
is  more  generally  in  circulation.  Gold  is  usually  at  a  high 
premium. 

Draw  drafts  in  United  States  Dollars,  New  York  exchange. 

Peru. 

A  Republic;  area,  449,000  square  miles;  population,  2,622,- 
000;  principal  cities  and  population:  Arequipa,  35,000;  Lima, 
capital,  103,956;  Callao,  35,492;  Cuzco,  30,000. 

Unit— Sol=io  Dineros  of  10  Centavos. 

Gold  Coins  and  Value: — Doubloon,  $15.57;  20  Sol,  $9.65; 
10  Sol,  $4,825;  5  Sol,  $2,412;  2  Sol,  96.4  cents;  Sol,  48.2 
cents. 

Silver  Coins  and  Value: — Sol,  42.7  cents;  Half  Sol,  21.3 
cents;  Fifth  Sol,  8.5  cents;  Dinero  or  Tenth  Sol,  4.3  cents; 
Half  Dinero,  2.2  cents;  Peso,  old,  52  cents. 

Minor  Coins: — 2  and  i  Centavos  of  copper.  The  value  of 
the  Centavo  is  nominally  i  cent. 

Paper  Money: — No  data  as  to  present  paper  currency^, 
This  Country  mines  a  vast  quantity  of  silver. 

Draw  drafts  in  United  States  Dollars,  New  York  exchange 
unless  preferred  in  other  money. 


Cities  in  Venezuela.  285 

Uruguay. 

A  Republic;  area,  72,172  square  miles;  population,  792,- 
800;  principal  cities  and  population:  Montevideo,  capital, 
238,080;  Salto,  12,000;  San  Jose,  7000. 

Unit — Peso  =  100  Centavos. 

Gold  Coins  and  Value: — Peso  or  Patacoes,  $1,034;  4 
Patacoes,  5  Pesos,  $5.17;  2  Patacoes,  2^^  Pesos,  $2,585. 

Silver  Coins  and  Value: — Peso,  42.7  cents;  50  Centavos, 
21.3  cents;  20  Centavos,  8.5  cents;  10  Centavos,  4,3  cents. 

Minor  Coins: — No  data. 

Paper  Money: — Notes  issued  by  one  local  and  five  foreign 
banks  in  several  denominations  of  Pesos. 

Many  American  and  British,  as  well  as  some  other  Euro- 
pean coins,  circulate  freely. 

Draw  drafts  in  United  States  Dollars,  New  York  exchange. 

Venezuela. 

A  Republic;  area,  597,960  square  miles;  population,  2,560,- 
400;  principal  cities  and  population:  Cardcas,  capital,  72,429; 
Valencia,  38,654;    Maracaibo,  45,177;    Barquisimeto,  31,476, 

Unit — Bolivar  =  20  Centavos. 

Gold  Coins  and  Value :  — 100  Bolivars,  $19.30;  50  Bolivars, 
$9.65;  20  Bolivars,  $3.86;  10  Bolivars,  $1.93;  5  Bolivars,  96.5 
cents. 

Silver  Coins  and  Value: — Venezolano,  5  Bolivars,  93.5 
cents;  2  Bolivars,  34.7  cents;  Bolivar,  17.4  cents;  lo  Centavos, 
d>.y  cents;  4  Centavos,  3.5  cents. 

Minor  Coins: — 10  and  5  Centavos  of  bronze. 

Paper  Money: — Notes  issued  by  three  English  banks  in 
usual  denominations  of  Bolivars. 

Draw  drafts  in  United  States  Dollars,  New  York  exchange, 
unless  preferred  in  other  money. 


286        International  Exchange. 

Similarity  of  Monetary  Systems  of  Different  Countries. 

It  will  be  especially  noted  that  the  French  system  of 
Francs  is  in  use  in  several  countries. 

Belgium  and  Switzerland  use  the  term  Franc,  but  the 
equivalent  pieces  of  the  other  countries  are  as  follows: 

Italy,  Lira;  Spain,  Peseta;  Greece,  Drachma;  Bulgaria,  Lew; 
Roumania,  Lei;  Servia,  Dinar;  Finland,  Markka,  or  Finmark; 
Venezuela,  Bolivar;  all  being  of  about  the  same  value. 

The  dollar  of  South  America  is  called  Sol;  that  of  Bolivia, 
Boliviano;  Ecuador,  the  Sucre;  and  in  Haiti  a  similar  coin  is 
called  Gourde. 

The  Guilders  of  Holland,  Gulden  of  Germany,  and  Peso 
Duras  of  Spain  are  no  longer  coined. 

The  Tael  of  China  is  a  weight  only,  and  varies  in  value 
according  to  location. 

In  countries  where  coins  of  a  very  small  value  are  used  to 
a  great  extent,  as  in  case  of  the  coin  called  Cash  used  in 
China,  worth  only  about  i/io  of  a  cent,  the  people  are  either 
very  poor  or  very  economical. 

Terms — Coinage  of  Money. 

In  connection  with  the  coinage  of  metals  for  use  as  money, 
several  terms  are  used,  as  follows: 

Ratio  is  used  to  express  the  equivalent  between  gold  and 
silver  under  the  various  mint  laws. 

Free  Coinage  is  used  to  signify  that  any  one  may  bring 
bullion  to  the  mint  to  be  coined,  and  whatever  difference 
there  is  between  the  value  of  the  pieces  coined  and  the 
original  cost  of  the  bullion  is  profit  to  the  owner. 

Seignorage  is  used  to  indicate  the  difference  between  the 
market  value  of  the  bullion  and  its  coinage  value. 

Bi-Metalism  means  the  free  and  unlimited  coinage  of  both 
gold  and  silver  into  coins  of  full  paying  value. 


Duties  of  the  Mint  Director.  287 

SUPPLEMENTATION. 

Revised  Values.* 

Subjoined  are  the  Monetary  Units  of  all  the  principal  countries 
of  the  world  with  the  approximate  value  in  the  money  of  the 
United  States  under  date  of  April  i,  1908. 

The  Monetary  Units  of  Countries. 
Values  of  Foreign  Coins. 

Once  each  three  months,  the  Director  of  the  United  States 
Mint  at  Washington,  District  of  Columbia,  is  required  to 
estimate  the  values  of  the  standard  coins  of  the  nations  of  the 
world  and  to  publish  same  in  circular  form  for  use  of 
Collectors  of  Customs  in  computing  the  value  of  goods 
imported.  It  is  rarely  ever  necessary  to  change  the  values  of 
gold  coins,  since  their  weight  and  fineness  are  fixed  by  the 
laws  of  the  countries  where  issued,  and  the  value  of  pure  gold 
is  the  same  throughout  the  world.  In  the  case  of  silver  coins 
it  is  quite  different,  as  the  value  of  silver  fluctuates  according 
to  the  actual  market  for  same,  just  as  is  the  case  with  any 
commodity.  The  values,  as  given  by  the  Director  of  the 
United  States  Mint  for  silver  coins,  are  based  upon  the 
amount  of  pure  silver  contained  therein,  and  the  average 
market  price  of  silver  for  the  three  months  preceding  the 
date  of  his  circular. 

Compiled  below  are  the  monetary  units  of  all  the  principal 
countries  of  the  world,  showing,  also,  whether  such  units  are 
of  gold  or  silver,  and  their  approximate  val-ue  in  the  money 
of  the  United  States.  All  values  are  as  given  by  the  Director 
of  the  United  States  Mint  in  the  circular  of  April  i,  1908, 
except  those  values  prefixed  by  (*),  the  value  whereof  is 
estimated  by  the  compiler. 

*  Compiled  by  Mr.  Howard  K.  Brooks  of  Chicago. 


288 


International  Exchange. 


Europe. 


Country. 

Monetary  Unit. 

Standard.       Value. 

Austria- Hungary 

Krone=ioo  Heller, 

Gold,      $0 

203 

Belgium, 

Franc=ioo  Centimes, 

Gold, 

193 

Bulgaria, 

-     Lew=ioo  Stotinki, 

Gold,        * 

193 

Denmark, 

Krone  or  Crown  =ioo  Ores, 

Gold, 

268 

England, 

J  Pound=2o  Shillings  of  12  ") 
(      Pence,  of  4  Farthings,      j 

Gold,        4 

8665 

Finland,    - 

Finmark=ioo  Penni,     - 

Gold, 

193 

France, 

-     Franc=  100  Centimes, 

Gold, 

193 

Germany, 

Mark  =100  Pfennig, 

Gold, 

238 

Greece, 

-     Drachma=ioo  Lepta, 

Gold, 

193 

Holland,  - 

Gulden  or  Florin  =  100  Cents 

,   Gold, 

402 

Ireland, 

-     Same  as  England, 

Gold,        4 

8665 

Italy, 

Lira=ioo  Centesimi, 

Gold, 

193 

Norway, 

-     Krone=  100  Ores, 

Gold, 

268 

Portugal, 

Milreis=iooo  Reis, 

Gold,        I 

08 

Roumania,    - 

-     Lew  =100  Bani,     - 

Gold,        * 

193 

Russia, 

100  Copecks, 

Gold, 

515 

Scotland, 

-     Same  as  England, 

Gold,        4 

8665 

Servia, 

Dinar  =100  Paras, 

Gold,        * 

193 

Spain, 

-     Peseta=ioo  Centimos,  - 

Gold, 

■193 

Sweden, 

Krone=ioo  Ores, 

Gold, 

268 

Switzerland, 

-     Franc  =100  Centimes,   - 

Gold, 

193 

Turkey, 

Piaster =40  Paras, 

Gold, 

.044 

Wales, 

-    Same  as  England, 

South  America. 

Gold,        4 

8665 

Country. 

Monetary  Unit. 

Standard.    Value. 

Argentina, 

Peso=ioo  Centavos, 

Gold,        0 

965 

British  Guiana, 

-     Money  of  England. 

Bolivia, 

Boliviano=ioo  Centavos, 

Silver, 

.408 

Brazil, 

-     Milreis=iooo  Reis, 

Gold, 

.546 

Chili, 

Peso=ioo  Centavos, 

Gold, 

.365 

Colombia,    - 

-    Dollar=  100  Cents 

Gold,       i.oo 

Ecuador, 

Sucre=  1 00  Centavos, 

Gold, 

.487 

Peru, 

-     Sol=io  Dineros, 

Gold, 

.487 

Uruguay, 

Peso=  100  Centavos, 

Gold,        I 

•034 

Venezuela, 

-     Bolivar=20  Centavos,    - 

Gold, 

.193 

Revised  Values. 


289 


Asia. 

Country. 

Monetary  Unit. 

Stand.^rd. 

Value. 

Afghanistan, 

Rupee=i6  Annas, 

Silver, 

*$o.324 

Baluchistan, 

Rupee=i6  Annas,    - 

Silver, 

*324 

Ceylon, 

Rupee=ioo  Cents, 

Silver, 

*-324 

China, 

Dollar=ioo  Cents,    - 

Silver, 

t 

Corea, 

Yang  =100  Cash, 

Silver, 

.11 

Hong  Kong,     - 

Dollar=ioo  Cents,   - 

Silver, 

•439 

India, 

Rupee=i6  Annas, 

Silver, 

•324 

Indo- China,     - 

Piaster=  100  Cents,  - 

Silver, 

.40 

Japan, 

Yen  =100  Sen, 

Gold, 

.498 

Java, 

Florin  =100  Cents,    - 

Gold, 

*.402 

Nepal, 

Same  as  India, 

Silver, 

*.324 

Persia, 

Krans=2o  Shahis,     - 

Silver, 

.075 

Philippines, 

Pe3o=ioo  Centavos, 

Silver, 

.50 

Russia,  in  Asia, 

Ruble=ioo  Copecks, 

Gold, 

*-5i5 

Siam, 

Florin  =  100  Cents, 

Gold, 

*.402 

Straits  Settlements, 

Dollar  =100  Cents,    - 

Silver, 

.56S 

Sumatra, 

Florin  =  100  Cents, 

Gold, 

*.402 

Turkey  in  Asia,    - 

Piasters =40  Paras,    - 

Gold, 

*.044 

Africa. 


Country. 

Monetary  Unit. 

OTANDARD. 

Value. 

Algeria, 

Franc=ioo  Centimes, 

-      Gold, 

*$o.i93 

Cape  Colony, 

Money  of  England, 

Gold, 

4.86C5 

Congo  Free  State, 

Franc=ioo  Centimes, 

-       Silver, 

*  193 

Egypt,           -       ^  - 

Pound=ioo  Piastres, 

Gold, 

4.943 

German  East  Africa, 

Rupee=ioo  Hellers, 

Silver, 

.324 

Liberia, 

Dollar=ioo  Cents, 

Gold, 

*I.OO 

Natal, 

Money  of  England, 

-       Gold, 

*4.8665 

Orange  Free  State, 

Money  of  England, 

Gold, 

*4.8665 

Reunion, 

Franc=ioo  Centimes, 

-      Gold, 

*  193 

South  African 

Republic,  - 

Money  of  England, 

Gold, 

*4.866s 

Tunis, 

Franc=ioo  Centimes, 

-      Gold, 

*-i93 

t  While  the  monetary  unit  of  China  is  the  Silver  Dollar  of  100  Cents,  the  coin 
most  frequently  used  is  tlie  Silver  Tael,  and  its  value  varies  according  to  locality 
of  issue,  ranging  from  61  to  69  cents. 

19 


290 


International  Exchange. 


North  America. 


Country. 

Monetary  Unit. 

Standard. 

Value. 

Alaska, 

Dollar=  100  Cents,    - 

Gold, 

*$I.OO 

Canada, 

Dollar  =100  Cents, 

Gold, 

*I.OO 

Labrador, 

Dollar  =100  Cents,    - 

Gold, 

*i.oi5 

,,     .                        (■  Peso  or  Dollar  =100  ) 
Mexico,         -         -^  /-     .              r^     ^        c  - 
I  Centavos  or  Cents,      J 

Gold, 

.49S 

Newfoundland, 

Dollar=ioo  Cents,    - 

Gold, 

1. 014 

United  States, 

Dollar  =100  Cents, 
Central  America. 

Gold, 

1^0 

Country. 

Monetary  Unit. 

Standard. 

Value. 

British  Honduras,  < 

\  Peso  or  Dollar  =100  \ 
[    Centavos  or  Cents,   j 

Gold, 

1. 00 

Costa  Rica, 

Colon=ioo  Centavos, 

Gold, 

.465 

Guatemala, 

Peso=ioo  Centavos,     - 

Silver 

.408 

Honduras, 

Peso=ioo  Centavos, 

Silver, 

.408 

Nicaragua, 

Peso  =100  Centavos,     - 

Silver, 

.408 

Panama, 

-Balboa=ioo  Cents 

Gold, 

$1.00 

Salvador, 

Peso=ioo  Centavos, 

Silver, 

.408 

Islands  of  the  Atlantic  and  Pacific  Oceans. 

Country. 

Monetary  Unit. 

Standard. 

Valub. 

Australia, 

Bahama, 

Barbadoes, 

Use  the  money  of  England : 

\ 

Borneo, 
Bermuda, 
Fiji,     - 
Jamaica, 

Pound,    Sterling,    of    20 
Shillings  of  12  Pence  of 
4  Farthings, 

I  Gold, 

*4.S665 

New  Zealand, 

Tasmania,   - 

Hawaii,    - 

Dollar  =100  Cents, 

Gold, 

1. 00 

Cuba, 

Peso  =100  Centavos, 

Gold, 

,926 

Hayti,      - 

Gourde  =  100  Cents, 

Gold, 

•965 

Martinique, 

Franc=ioo  Centimes, 

Gold, 

•193 

Porto  Rico, 

Dollar=ioo  Cents, 

Gold, 

1,00 

INDEX 


A-B-C  Code,  52. 

Abyssinia,  its  cities  and  moneys,  258. 
Acceptance  Account,  The,  10. 
bill,  form  of,  181. 
bills,  documentary,  180. 
bill,  marginal  note,  182. 
Account,  Acceptance,  10. 

Active,  98. 
Accounts,  European,  180. 
Active  accounts,  98. 
Aden,  249. 

Advance  in  price  for  drafts,  57. 
Advantages  of  competition,  13. 
Advice  of  Letter   of  Credit   and  sig- 
nature, specimen  of,  84. 
Afghanistan,  its  cities  and  moneys,  250. 
African  correspondents,  82. 
Alaska,  its  cities  and  money  in  use,  267. 
Algeria,  its  cities  and  moneys,  258. 
Almanac,  The  Banking,  7. 
American  debit  balance,  reason  for,  231. 
exporters   unsuccessful    in   invading 

South  American  countries,  178. 
Finance  Bill,  35. 

goods,    European    cities,    clearing- 
houses for,  163. 
Andorra,  its  cities  and  moneys,  236. 
Angola,  its  city  and  money  in  use,  259. 
Anguilla  Island,  its  city  and  moneys  in 

use,  274,  275. 
Arbitrage  transactions,  33,  132,  213. 
summary  of,  226. 
through  Holland,  157. 
wide  scope  of,  225. 
Arbitrages  and  Parites,  225. 

Banknotes  et  Monnaies,  225. 
Arbitrations   and    Parities   of  Foreign 

Exchange,  221;. 
Argentma,  its  cities  and  moneys,  279. 
Australia,  its  cities  and  moneys,  265. 
Austria,  branch  banking  in,  151. 
Austrian  Account,  The,  164. 

terms  and  conditions  of,  164. 
Austrian  correspondents,  80. 
Austria- Hungary,  its  cities  and  moneys, 
236,  237. 

B 

Bahama  Islands,  its  cities  and  moneys 

in  use,  275. 
Baker,  Henry  D.,  4. 
Baluchistan,  its  cities  and  moneys,  250. 
Bank  of  England,  8,  lo. 

291 


Bank   of  England  controls    profitable 
importation  of  gold,  232. 
directors' meetings,  116. 
discount  rate,  112,  116. 
functions  of,  9. 

importance  of  discount  rate,  117. 
national  position  of,  8. 
power  of,  117. 

rate,  difficulty  of  forecasting,  119. 
Bank  of  New  York,  N.  B.  A.,  7. 
Bank  post  remittances,  188. 
Bankers'  basis  for  quotations  of  foreign 
exchange  futures,  59. 
bills,  heavy  demand  for,  32. 
checks,  46,  180,  184. 
checks  upon  foreign  correspondents, 

44. 
drafts  upon  foreign  correspondents, 

44. 
German  check,  185. 
long-time  drafts,  46. 
Paris  check,  1S6. 
Banking,  central  and  branch,  142. 
Barbadoes,  data  as  to,  275. 
Basis  for  determining  terms  and  condi- 
tions of  European  accounts,  167. 
for  purchase  of  Dutch  bills,  157. 
Belgian  Account,  The,  15S. 

bankers  refuse  to  make  future  quo- 
tations, 158. 
bills,  161. 

terms  and  conditions,  159. 
Belgium,  its  cities  and  moneys,  237. 

the  Bank  of,  10. 
Bermudas,    The,    city  and    money   in 

use,  273. 
Benefits,  direct  and  indirect,  from  The 
Foreign  Department,  14. 
to  drawee  from  Finance  Bills,  42. 
to    exporters    through    Commercial 
Letters  of  Credit,  89. 
Berlin   office,    an   account   with  gives 

branch  banks,  130. 
Bill,  acceptance,  form  of,  181. 
BiUs,  abnormal  demand  and  increased 
prices  for,  32. 
Abnormal     supply    and    depressed 

prices  for,  31. 
ample  time  for  transit  of,  65. 
and  Collateral,  description,  22. 
Bankers',  heavy  demand  for,  32. 
basic  prices  for,  104. 
bought  and  sold  for  future  delivery, 
37- 


292 


International  Exchange. 


Bills,  clear,  description  of,  44,  45. 
convertible  into  cash,  1 7. 
for  collection  and  accounting,  70. 
documentary,  22. 

documentary  acceptance,  45,  64,  180. 
documentary,     not    discountable    in 

England,  115. 
documentary  on  Germany,  61. 
documentary  payment,  45,  Ii5- 
documentary  payment,  as  collateral, 

126. 
double-named,  comparison  of,  47. 
drawers'  liability,  45. 
exporters  sellers  of  future,  58. 
foreign,  as  an  investment,  15. 
foreign  laws  on  endorsements,  48. 
foreign,    purchase   of  equivalent   to 

purchase  of  gold,  1 7. 
foreign,  purchased  for  investment,  60. 
fundamental  security  to,  44. 
future  delivery,  bought  and  sold,  37. 
future  delivery  in  installments,  56. 
future,  sale  of,  57. 
German,  curtailingcollectioncharges, 

141. 
German,  discount  rates,  140. 
German    documentary    payment, 

prices  for,  135. 
German,  suggestions,  139. 
guide  for  purchase  of,  43. 
issued  in  two  parts,  187. 
highest  credit  of  drawer  and  drawee, 

45- 
long-time,    converted    into    checks 

or  drafts,  63. 
long  -  time,  demand  loans,  63. 
margin  of  profit,  129. 
memorandum  of  maturity,  65. 
modern  method  to  collect,  66. 
Bills   of  exchange,    best  agencies   for 

liquidating  debts,  227. 
on  Italy,  168. 
Bills  of  lading,  kinds  of,  22. 

suggestions,  23. 
Bills   on    Austria,   Switzerland,   Italy, 

Denmark,  Sweden  and   Norway, 

162. 
on  Belgium,  price  for,  160. 
on  France,  prices  for,  146,  147,  148. 
on  Holland,  prices  for,  154,  155,  156. 
on  Ireland,  128. 
on  Italy,  170. 
on  Scotland,   128. 
on    smaller    German    cities,    where 

sent,  139. 
on  Scandinavia,  173,  175. 
opportunities  to  negotiate,  108. 
precaution  in  purchasing,  46. 
purchase  of  for  future  delivery,  54. 


Bills  purchased  from  drawers,  66. 
remittances  of,  62. 
risk  in  purchase  of,  44. 
safely  purchased,  43. 
secured   by    non-perishable    goods, 

125. 
secured  by  perishable  goods,  124. 
short -time,  114. 
single -named,  47. 
Sterling  finance,  36. 
when  to  discount,  197. 
Boards  of  trade,  200. 
Bolivia,  its  cities  and  moneys,  280. 
Book  entries  to  French  Account,  142. 
Borneo,  its  cities  and  moneys  in  use, 

265. 
Branch  banks,  5. 

banking  in  Italy,  168. 
Brazil,  its  cities  and  moneys,  281. 
British  correspondents,  79.    Banks,  6. 
British  Guiana,  its  city  and  moneys  in 

use,  280. 
British  Honduras,  its  city  and  moneys, 

270. 
British  India,   its  cities  and  moneys, 

250,  251. 
British   Linen   Company  Bank,   Lon- 
don, 6. 
Broker,   foreign   exchange,   duties  of, 

201. 
Brooks,  Howard  K.,  4,  202,  212,  235, 

287. 
Buchan's  Sterling   Exchange    Tables, 

212. 
Bulgaria,  its  cities  and  moneys,  238. 


Cable  transfers,  49. 
prices,  112. 

receipts  to  purchasers,  53. 
Canada,  its  cities  and  moneys,  267. 
Cape  Colony,  its  cities  and  money  in 

use,  259. 
Cape  \'  erde  Islands,  cities  and  moneys, 

274. 
Capital  and  Counties  Bank,  London,  6. 
Care  in  preparation  of  drafts,  193. 
Cash  means,  to  deposits,  average  per- 
centage of,  6,  7,  8. 
Cash    overdrafts     expensive,     French 

Account,  149. 
Causes  of  fluctuations,  direct,  30. 

of  high  interest  rates,  60. 
Central  and  branch  banking,  5. 
Certificates  affixed  to  boxes,  Govern- 
ment, 29. 
consular,  29. 
different  kinds  of,  29. 
Government,  29. 


Index. 


293 


Certificates  of  inspection,  29. 

of  marine  insurance,  27. 

of  origin,  29. 

of  weight,  29. 
Ceylon,  its  cities  and  moneys,  251. 
Checks,  bankers',  46,  180,  184. 

bankers',  upon  correspondents,  44. 

bankers'  Paris,  186. 

conversion  of  long-time  bills  into 
drafts  or,  63. 

individual,  46. 

on  Russia,  179. 

on  London,  factors  having  a  ten- 
dency to  advance  prices  for,  and 
to  depress  prices  for,  216. 

on  London,  market  in  Holland  for, 
222. 
Chicago  exports,  amount  of,  21. 

output  of  foreign  exchange,  104. 
Chili,  its  cities  and  moneys,  282. 
China,  its  cities  and  moneys,  252,  253. 
Chinese  correspondents,  83. 
Cipher  Code,  A-B-C,  52. 

Lieber's,  52. 

telegraphic,  ^i. 

test-words,  52, 

use  of  telegraphic,  51. 
Clean  bills,  description  of,  44,  45. 
Clearing-house  for  international  trans- 
actions, London  is,  227. 

Paris  account,  when,  149. 
Code,  perfect,  private,  52. 
Coins,  foreign,  value  of,  235. 
Collateral,  perishable,  live  cattle,  44. 

security,  to  bills  of  exchange,  16. 
Collection,  actual  operation,  of  sight 
draft  on  New  South  Wales,  67. 

at  drawer's  expense,  71. 

letter,  specimen  of,  69. 

to  net  face  of  draft,  69. 

when  to  be  sent  to  nearest  point,  72. 
Colombia,  its  cities  and  moneys,  282. 
Commission  basis  for  English  Account, 

III. 
Commissions  for  Letters  of  Credit,  97. 
Commercial  Letters  of  Credit,  88. 

form  of,  92. 

how  used,  93. 

issued  in  four  parts,  91. 

specimen  of,  90. 
Commercial  West,  Minneapolis,  Minn., 

Compensation  for  services,  European 

accounts,  152. 
Competition,  advantages  of,  13. 
Compulsory  holding  of  exchange,  56. 
Conditions  creating  abnormal  demand 

for  bills  with  tendency  to  advance 

prices,  32. 


Conditions  creating  abnormal  supply  of 
bills    with    tendency    to    depress 
prices,   31. 
of  Letter  of  Credit,  guarantee,  87. 
Confirmation    of    Letters    of     Credit, 

effect  of,  89. 
Congo  Free  State,  its  city  and  moneys 

in  use,  259. 
Conservative  practice,  when,  purchase 

and  sale  for  future  delivery,  54. 
Consular  certificates,  2-9. 
Continental  exchanges,  218. 
Conversion    of    long-time     bills    into 

checks  or  demand  drafts,  63. 
Conversions,  202. 

in  arbitrage  transactions,  225. 

of  francs  into  pounds,  less  frequent, 

220,  221. 
of  marks,  francs,  florins,  218. 
Convertibility  into  cash,  bills,  17. 
Corea,  its  cities  and  moneys,  253. 
Correspondents,  Austrian,  So. 
African,  82. 
Chinese,  83. 
credit,  81. 
German,  80. 
Costa  Rica,  its  cities  and  moneys,  271. 
Cotton  exchanges,  200. 
Credits  against  guarantee,  86. 
Credit  balances,  17. 

in  Vienna,  cost  of,  165. 
Credit  correspondents,  81. 
Credit,  highest,  of  parties  to  bills,  45. 
Cuba,  its  cities  and  moneys,  276. 
Curtailing  collection  charges  on  Ger- 
man bills,  141. 
Customs,  New  York  brokers,  104. 


Danish  Account,  The,  172. 

Del  Credere,  190,  191. 

Delegation,  Letters  of,  180,  182. 

Demand  drafts  on  London   for  future 
delivei-ies,  57. 

Demand  for  American  Finance  Bills, 
41. 

Demand  loans,  long-time  bills,  are,  63. 

Denmark,  its  cities  and  moneys,  238. 

Deposits,  to  cash  means,  average  per- 
centage of,  6,  7,  8. 

Description  of  bills  and  collateral,  22. 

Difficulty  of  forecasting  Bank  of  Eng- 
land rate,  119. 

Direct  collection  to-day  of  drafts,  72. 

Directors'  meetings.  Bank  of  England, 
116. 

Discount  houses  in  London,  9. 
or  premium  unknown,  II. 
rate  in  Germany,  133. 


294 


International  Exchange. 


Discountable,  why  documentary  pay- 
ment bills  not,  in  England,  115. 
Dividend  rate,  average  annual,  6,  7. 
Dividends,    comparison    of    European 
and  American,  12. 
of  The  Foreign  Department,  15. 
Documentary  acceptance  bills,  45,  64, 
180. 
bill,  22. 

bills  on  Germany,  61. 
payment  bills,  45,  115. 
payment  bills  accepted  'as  collateral, 
126. 
Documents  covering  staple  non-perish- 
able merchandise,  43. 
Domestic  exchange,  19. 
Donner,  Herbert  M.,  4. 
Double-named  bill,  comparison  of,  47. 
Draft  on  India,  example  of  its  circuit 

from  Chicago  and  return,  99. 
Drafts,  195. 

advance  in  price  for,  57. 
bankers'  long-time,  46. 
bankers'  on  correspondents,  44. 
care  in  preparation  of,  193. 
collection  of  at  drawer's  expense,  71. 
collection  to  meet  face  of,  69. 
conversion    of   long-time  bills   into 

checks  or,  63. 
demand,     on     London     for    future 

delivery,  57. 
demand,  options  to  American  banker, 

55- 

direct  collection  of,  72. 

interest  on,  essential  feature  in 
collection,  66. 

issued  in  two  parts,  93. 

on  Belgium,  price  for,  160. 

on  French  cities,  142. 

on  London,  price  for,  112. 

on  England,  prices  for,  123. 

on  English  merchants,  documents 
on  payment,  covering  non-perish- 
able goods,  127. 

on  Germany,  prices  for,  137. 

on  Holland,  prices  for,  154  ^/ji?^. 

on  Italy,  170. 

on  Pan-American  countries,  103. 

on  Russia,  through   Germany,    178, 

payable  in  silver,  protection  against, 

102. 
prices  for,  on  German  bankers,  133. 
sight,  collection  of,  67. 
time,  American  national  banks  pro- 
hibited from  accepting,  10. 
Dutch    East     Indies,    its     cities    and 

moneys,  253. 
Dutch  terms  and  conditions,  143. 
Duty  on  importations,  way  to  find,  207. 


Ecuador,  its  cities  and  moneys,  283. 
Efficiency  of  American  Finance  Bill,  39. 
Egypt,  its  cities  and  moneys,  260. 
Ellert,  Arnold,  4. 

Endorsements  of  bills,  foreign  laws,  48. 
Endorsements,  regulations,  48. 
England,  drafts  on,  prices  for,  123. 

its  cities,  241. 
English  Account  on  commission  basis, 

III. 
English  Account,  The,  55,  109,  138. 

terms  and  conditions,  1 10. 
English    money,    additions    and    sub- 
tractions in,  203. 

conversion  of  United  States  money 
into,  204,  205. 

conversions  of,  202. 

market  open  to  all  the  world,  106. 

reduction  of,  204. 

ways  to  find  interest  on,  206. 
English  rate  of  discount,  private,  112. 

stamp  duties,  120. 
Eritrea,  its  city  and  moneys  in  use,  260. 
European  banking,  5. 

banking  relations  with  America,  162. 

countries,  monetary  units,  standards, 
values,  2S8. 

markets  all  open  to  America,  107. 

national  loans,  15. 
Exchange,  compulsory  holding  of,  56. 

French,  puzzling,    144. 

possible  loss  in,  in  Belgium,  159. 

rates,  factors  influencing,  30. 

Tables,  212. 
Exportations,  American,  227. 
Exporters,  beneficiaries,  13. 

desire  bids  for  foreign  exchange,  58. 

heavy  sellers  of  futures,  58. 
Exports,  American  for  1903,  19. 

direct  and  indirect,  between  Russia 
and  America,  177. 

F 

Factors  against  the  United  States,  229. 
in  favor  of  the  United  States,  230. 
and  conditions,  influencing  exchange 

rates,  30. 
controlling  daily  exchange  transac- 
tions, 112. 
superior     earning,       in     European 
banking,  5. 
Features,  advantageous,  of  Commercial 
Letters  of  Credit  to  importers,  88. 
Fenton,  William  T.,  4. 
Fergus,  Robert  C,  vi. 
Fiji  Islands,  its  capital,  and  money  in 

use,  266. 
Filiales,  or  branch  banks,  130,  139. 


Index. 


295 


Finance  Bills,   i  J,  20,  31,  34,  57,  59. 

American,  35. 

American,  efficiency  of,  39. 

benefits  to  drawee,  42. 

demand  for  American,  41. 

furnish  money  for  New  York  Stock 
Exchange,  41. 

international  view  of,  42. 

relief  afforded  by,  40. 

renewals  of,  41. 
Financier,  The,  of  New  York,  7. 
Finland,  its  cities  and  moneys,  239. 
First    National    Bank   of    New- York 

City,  7. 
Foreign  Account,  sales  and  purchases 
for,  20. 

accounts,  general  instructions,  192. 

banking  laws,  48. 

bills  of  exchange  as  an  investment, 

bills    of    exchange     purchased     for 
investment,  60. 

coins,  value  of,  235. 
Foreign  Department,  benefits,  14. 

dividends,  15. 

importance  of,  21. 

profits,  essential  object  of,  15. 

The,  growth  of,  12. 

working  capital  of,  126. 
Foreign  exchange,  3. 
Foreign  Exchange,  4. 
Foreign  exchange,  American,  absorbed 
by  New- York  City,  104. 

broker,  200. 
"Foreign  Exchange,"  by  Howard  K. 

Brooks,  202. 
Foreign  exchange,  Chicago  output,  104. 

Conversion  Tables,  Complete,  212. 

exporters  desire  bids  for,  58. 

futures,  banker's  basis  for  quotations, 

59- 
rates,  causes  of  fluctuations,  30. 
source  of  supply,  19,  58. 
Foreign     loans,    simplicity    of   nego- 
tiating, 41. 
Form  of  acceptance  bill,  181. 

of  agreement  for  Commercial  Letters 
of  Credit,  92. 
Fourth    National     Bank,    New- York 

City,  7. 
Fractional  quotations  French  Account, 

examples  of,  145. 
France,  Bank  of,  10. 

its  cities  and  moneys,  239,  240. 
Franco  commission,  152. 
French  Account,  The,  142. 
cash  overdrafts  expensive,  149. 
terms  and  conditions,  143. 
French  banking  laws,  143. 


French  banking,  system  of,  142. 
Conversion  Tables,  212. 
correspondents  in  Belgium,  Switzer- 
land and  Italy,  149. 
French    exchange,    fractional     quota- 
tions, 144. 
puzzling,  144. 
rates  explained,  144. 
French  Guiana,  its  city  and  money  in 

use,  283. 
French  interest  account,  147. 
money,  conversion  of,  210. 
rate  of  commission,  143. 
Functions  of  Bank  of  England,  9. 
Fundamental  security  to  bills,  44. 
Future  delivery,  bills  bought  and  sold 

for,  54. 
Future  deliveries  in  installments,  56. 
Futures,  sale  of,  57. 


Gallatin  Nat.  Bank,  N.  "^  City,  7. 
German  Account,  The,  ^,  130,  142. 

terms  and  conditions,  132. 
German  banker's  sources  of  income, 

131- 
banking  institutions  in  Russia,  178. 
banking,  system  of,  142. 
bill  stamp  duty,  182. 
bills,  suggestions  as  to,  139. 
correspondents,  80. 
credit  basis,  178. 

documentary   payment   bills,    prices 
for,    135. 
German    East    Africa,   its  cities   and 
moneys,   261. 
rates  for  discounting  bills,  140. 
money,  conversion  of,  208. 
money,  conversion  of  United  States 
money  into,  209. 
Germany,  its  cities  and  moneys,  240. 
Gibraltar,  its  city  and  moneys,  241. 
Giro  Conto  Transfer,  The,  10. 
Gold  exports  and  imports,  227. 
exports,  temporarily  checked,  33. 
or  bullion  points,  214. 
points,  232. 

purchase  of  bill  of  exchange,  equiv- 
alent to  purchase  of,  17. 
selling  price  in  England,  232. 
Government  bonds,  no  market  for,  18. 

certificates,  29. 
Great  Britain,  its  cities  and  moneys, 

241. 
Greece,  its  cities  and  moneys,  242. 
Guadeloupe,   its  city  and  moneys  in 

use,  276. 
Guatemala,  its  cities  and  moneys,  271, 

272. 
Guarantee  for  Credit,  86. 


296 


International  Exchange. 


Guarantee,  specimen  form  of,  87. 
Guide  for  purchase  of  bills,  43, 
Gutmann,  Herbert  M.,  4. 

H 

Haiti,  its  city  and  moneys,  277. 
Hanover  National  Bank  of  New- York 

City,  7. 
Hawaiian  Islands,  its  city  and  money 

in  use,  266. 
Hayti,  its  city  and  moneys,  277. 
Herzog,  Paul,  4. 
Holland,  243. 

Holland  Account,  The,  151,  152. 
Holland,   conversion  of  bills  on,  into 
English  pound,  Sterling,  221. 

prices  for  bills  on,  154  et  seq. 

terms  and  conditions  of  account,  153. 
Honduras,  its  cities  and  moneys,  272. 
Hong  Kong,  its  city  and  moneys,  254. 
Hypothecation,  general  power  of,  24. 

paper,  2'5j.. 

I 
Imperial  Reichsbank,  10. 
Importance  of  the  discount  rate  of  the 

Bank  of  England,  117. 
Importation  of  gold,  the  profitable,  232. 
Importers,  beneficiaries,  13. 
Imports,  American  for  1903,  19. 
Individual  checks,  46. 
Indo-China,  its  cities  and  moneys,  254. 
Influences  of  Bank  of  England  discount 

rate,  118. 
Inland  risks,  28. 

Innovation  as  to  European  account,  in. 
Inspection  certificates,  29. 
Instructions  covering  foreign  accounts, 
192. 

general,  for  issue  of  certain  bills,  180, 

written,  195. 
Interest  account,  French,  147. 

in  Holland,  152. 

source  of  profit  to  German  bankers, 

131- 
Interest,  fair  rate  of,  15. 

on  draft,  essential  feature,  collection 

of  drafts,  66. 
rates,    American   high,    against  low 

rates  in  London,  36. 
rates,  high,  causes  of,  60. 
International      Banking      Institution, 

Foreign  Department  creates,  14. 
International     commerce,     American, 

increase  of,  20. 
International,  reason  for  use  of  instead 

of  word,  foreign,  3. 
International   trade   balances  adjusted 

by  New  York  financiers,  105. 
International  view  of  Finance  Bills,  42. 


Introduction,  Letter  of  Credit,  77. 
Invisible     international     trade    credit 

balance,  228. 
Invoice,  shipper's,   28. 
Ireland,   243. 

bills  on,    128. 

its  cities,  241. 
Issue  of  bills  of  lading,  23. 
Italian  Account,  The,  168. 

current  commission,  171, 

terms  and  conditions  of,  169. 
Italy,  direct  trade  relations  with,  163. 

its  cities  and  moneys,  243. 


Jamaica,  its  city  and  money  in   use, 

277,  278. 
Japan,  its  cities  and  moneys,  255. 
Joint  and  several  Letter  of  Credit,  84. 


Labrador,  268. 

Letter  of  Credit,  advice  of,  signature, 

and  sample  of,  84. 
Letters  of  Credit,  benefits  to  importers, 
88. 

Commercial,  88,  90,  91,  92,  93. 

Commercial,  benefit  to  exporters,  89. 

Commercial,  form  of  agreement,  92. 

commission  for,  97. 

conditions  of  guarantee,  87. 

effect  of  confirmation  of,  89. 

introduction,  77. 

joint  and  several,  84. 

issued  in  two  parts,  76. 

specimen  of,  75. 

terms  and  conditions,  86. 

traveler's,  66,  98. 

profitable  source  of  revenue,  73. 

how  used,  85. 
Letters  of  Delegation,  138,  180,  182. 

specimen,  183. 
Liability  of  drawers  on  bills,  45. 
Liberia,  its  cities  and  moneys  in  use, 

261. 
Lieber's  Code,  52. 
Limitation  of,  time,   silver  payments, 

lOI. 

List  of  correspondents,  76. 
issued  in  book  form,  77. 
Lloyd's  Bank  of  London,  6. 
London    agencies   of   European    con- 
tinental banking  institutions,  106. 
and  Counties  Banking  Company, 
London,  6. 
and  South  Western  Bank, London,  6. 
banks,  ten,    capital   of,    reserve    of, 
deposits,  cash  means,  dividends,  6. 
book  balance,  55. 


Index. 


297 


London  City  and  Midland  Bank,    6. 
connections,  American  bankers  with, 

17- 
joint-stock  company  banks,  5,  6. 
monetary     centre     of     commercial 

world,  227. 
The,  City  and  Midland  Bank,  Lon- 
don, 75. 
Long-time  bills  demand  loans,  61,. 
Loss,    possible    maximum  on  foreign 

exchange,  233. 
Lynch,  John  A.,  4. 

M 

Madagascar,  its  capital  and  moneys  in 
use,  261. 

Manchester    and     Liverpool    District 
Banking  Company,  London,  6. 

Marginal  profit  on  bills  nominal,  129. 

Margraff,  Anthony  W.,  4. 

Marine  insurance,  certificates  of,  sug- 
gestions as  to,  27. 

Mark,  fraction  of  values  for,  accurately 
expressed,  138. 

Martinique,  its  city  and  money  in  use, 
278. 

Memorandum,    accurate,    for  dates  of 
maturities  of  billi,  65. 

Method,  modern  to  collect  bills,  66. 

Mexico,  drafts  on,  103. 
its  cities  and  moneys,  268. 

Mint,  Director  of  United  States,  doty 
of,  287. 

Mint  pars  of  exchange,  214. 

Mint  par  midway  between  gold  point 
rates,  215. 

Monaco,  its  cities  and  moneys,  243. 

Money  market  of  England  open  to  all 
the  world,  106. 

Money  markets  of  the  world,  41. 

Monetary   conditions    throughout    the 
world,  rarely  identical,  60. 

Monetary  units  of  all  countries,  235. 
of  countries,  287. 

all  countries,  standards,  values,  288, 
289,  290. 

Moneys  of  all  countries,  235, 

Morocco,  its  cities  and  moneys  in  use, 
262. 

N 

Natal,  its  cities  and  moneys  in  use,  262. 

National   Bank  of  Commerce,    New- 
York  City,  7. 
of  North  America,  New- York  City, 

7- 
of  the  Republic  of  Chicago,  The,  4, 

24-  75.  76,  77,  90- 
National   Banking   Act,   The,  of  the 
United  States,  5,  12. 


National  Banks,  American,  unlawful 
to  accept  time  drafts,  10. 

National  City  Bank,  New- York  City,  7. 

National  Park  Bank,  New- York  City,  7. 

National  position  of  Bank  of  Eng- 
land, 8. 

National  Provincial  Bank  of  England, 
London,  6. 

Nepal,  its  city  and  moneys,  255. 

Netherland's  Bank,  London,  10. 

Netherlands,  The,  243. 

Newfoundland,  its  city  and  moneys  in 
use,  269,  270. 

New- York  City,  absorbs  practically  all 
American  foreign  exchange,  104. 

New- York  City  banks,  ten,  capital, 
reserves,  deposits,  cash  means, 
dividends,  7. 

New- York  City,  broad  foreign  mar- 
ket, 17. 

New  York  exchange,   198,  199. 

New  York  Stock  Exchange,  money 
loaned  on,  obtained  by  issuance  of 
Finance  Bill,  41. 

New  Zealand,  its  cities  and  money  in 
use,  266. 

Nicaragua,  its  cities  and  moneys,  272. 

Non-perishable  collateral,  127. 

Norway,  its  cities  and  moneys,  244. 

Norwegian  Account,  The,  172. 

Nugent,  Christopher  R.,  4, 

O 

Open  Discount  Market,  The,  9. 
Open  market,  discount  rate,  56. 
Operations,  The  Giro  Conto  Transfer, 

II. 
Opportunities  to  negotiate  bills  afforded 

American   bankers    by  reason  of 

exports,  108. 
Options  to  American  banker  to  issue 

his  demand  drafts  on  London,  55, 
Orange  River  Colony,  its  cities  and 

moneys  in  use,  262. 
Pan-American  countries,  draftson,  lo-i. 
P  ^ 

Paraguay,  its  cities  and  moneys,  284. 
Paris    account,   clearing-house,   when, 

149. 
Paris  Bank,  London,  6. 
Payable    in    London,    explanation  of 

phrase,  128. 
Perfect  code,  52. 

Persia,  its  cities  and  moneys,  256. 
Peru,  its  cities  and  moneys,  284. 
Petroleum  exchanges,  200. 
Philippine     Islands,     its     cities    and 

moneys,  256. 
Philipson,  Maur,  4. 


298 


International  Exchange. 


Porto  Rico,   its  cities  and  moneys  in 

use,  278. 
Portugal,  its  cities  and  moneys,  245. 
Power,    earning     power     of    Finance 

Bills,  37. 
Power  of  hypothecation,  general,  24, 

of  the  Bank  of  England,  117. 
Powers,  increase,  American   National 

Banks,  5. 
Precaution  in  purchasing  bills,  46. 
Premium  or  discount  unknown,  11. 
Price  bid  for  cable  transfers  on  Lon- 
don, 112. 
Price  for  demand  drafts  on   London, 

112. 
Prices,  American,  when  in  excess  of 

parities,  223. 
basic,  and   quotations  upon  foreign 

bills,   emanate    from    New   York 

banks,  104. 
drafts  on  Germany,   137. 
for    bills    on    French    bankers,    or 

prime  merchants,  146. 
for  drafts  on  England,  12 1, 
ol  cable  transfers,  49. 
Private,  English,  rate  of  discount,  112. 
Profits,  earning  of,  essential  object  of 

The  F"oreign  Department,  15. 
Proper  way  to  purchase  bills,   113. 
Protections  to  American  banker,  when 

draft  payable  in  silver,  102. 
Purchases  of  futures  conservative,  59. 
Purchases,  outright,  of  securities,  41. 


QuotationofS- i5,French  Account,  144. 
Quotations,  bankers'  basis   for  foreign 
exchange  futures,  59. 
for  exchange  from  Paris  on  Belgium, 

Switzerland  and  Italy,  150. 
from  Holland  correspondent,  157. 
of   checks    on    London    for    future 
delivery,  224. 

R 

Rate  of  exchange  between  France  and 
Switzerland,  Belgium  and    Italy, 
149. 
of  English  discount,  113. 
German  Reichsbank,  61. 
Rates  of  discount,  daily  wire  of,  134. 
Receipt,  bank  post  remittance,   189. 
Receipts  to  purchasers  cable  transfers, 

53- 
Regulations  as  to  endorsements,  48. 

Reichsbank  rate,  136. 

Relative  risk  in  purchase  of  bills,  43. 

Relief  afforded  by  Finance  Bill,  40. 

Remittances,  192. 

of  bills,  62. 


Renewals  of  Finance  Bills,  41. 
Retirement  rate,  112. 
Retirement  Rate  of  Discount,    ,5,  115. 
Reunion,  its  city  and  money  in  use,  262. 
Reverse  side  of  Letter  of  Credit,  76. 
Revised  values  of  all   principal  coun- 
tries under  date  of  April  i,  1903, 
287. 
Risks,  Inland,  28. 
Risk  in  purchase  of  bills,  44. 
Roumania,  its  cities  and  moneys,  245. 
Russia,  177. 

checks  on,  179. 

its  cities  and  moneys,  246. 
Russo- American  banking,  177. 


Saint  Helena  Island,  274. 
Salvador,  its  cities  and  moneys,  273. 
Santo  Domingo,  its  cities  and  moneys 

in  use,  279. 
Scandinavia,  branch  banking  in,  173. 
charges  for  bills  on,  175. 
purchase  of  bills  on,  1 76. 
Scandinavian  Account,  The,  172. 

terms  and  conditions  of,  171. 
Scandinavian    bills,    when     exchange 

paid  by  drawees,  173. 
Scope  of  International  Exchange, 

3- 
Scotland,  bills  on,  128. 

its  cities,  241. 
Seaboard  .National   Bank,   New- York 

City,  7. 
Securities,  highest  class  of,  as  collateral 

to  bills,   16,   18. 
Servia,  its  cities  and  moneys,  246,  247. 
Shippers'  invoice,  28. 
Shipping  documents,  29. 
Shipping  documents  to  acceptance  bill, 

181. 
Short  bills,  114. 

Siam,  its  cities  and  moneys,  257. 
Sierra  Leone,  its  capital  and  moneys 

in  use,  263. 
Silver  payments,    time  limitations  of, 

lOI. 

Silver,  speculation  in  price  of,  103. 
Similarity  of  monetary  systems  of  dif- 
ferent countries,  286. 
Simplicity,  negotiating  foreign  loans,  4. 
Single  named  bill,  definition  of,  47. 
Spain,  its  cities  and  moneys,  247. 
Specimen,  bank  post  remittance,  189. 

bankers'  check,  184. 

bankers'  German  check,  185. 

bankers'  Paris  check,  186. 


Index. 


299 


Specimen  cable  transfer  receipt,  53. 
collection  letter,  69. 
Commercial  Letter  of  Credit,  90. 
documentary  payment  bill,  22. 
form  of  general  hypothecation  power, 

24. 
form  of  guarantee,  Letter  of  Credit, 

87. 
general,  banker's  check,  187. 
Letter  of  Credit,  75. 
Letter  of  Delegation,   183. 
of  advice  and  signature  to  Letter  of 

Credit,  84. 
of  cover  of  list  of  correspondents,  77. 
pages  from  list  of  correspondents,  78. 
trust  receipt  under  Commercial  Let- 
ter of  Credit,  96. 
Speculation  on  price  of  silver,  103. 
Speculation,  results  of,  54. 
Stamp  duties,  British,  120. 
Standards,   values,  all  countries,  288, 

289,   290. 
Sterling  exchange  tables,  212. 
Sterling  finance  bill,  36. 
Stock  exchanges,  200. 
Straits  Settlements,  moneys  used,  257. 
Suggestions   as   to    issue    of    bills    of 

lading,   23. 
Supply  and  demand,  basis  of  value,  30. 
Sweden,  its  cities  and  moneys,  248. 
Swedish  Account,  The,  172. 
Swedish  money,  conversion  of,  211. 
Swiss  Account,  The,   166. 

terms  and  conditions  of,  167. 
Switzerland,  its  cities  and  moneys,  248. 
Supply     and     demand,    based     upon 

exports  and  imports,  227. 
System  of  issuing  drafts  upon  all  the 
countries  of  the  world  where  no 
active  account  of  drawers  is  kept. 


Table  of  English  money,  202. 
Tables  of  German  exchange,  212. 
Tasmania,  its  cities  and  money  in  use, 

266. 
Telegraphic  advices,  prompt,  219. 
cipher  code,  51. 

transfer    payments,    French,    extra 
commission,  149. 


Terms    and    conditions    of    English 
Account,   1 10. 
of  German  Account,  132. 
of  issue  of  Letters  of  Credit,  87. 
Terms,  coinage  of  money,  286. 

more  favorable  to  heavy  exporters, 
129. 
Test-words  in  code,  52. 
Text-books,   paucity  of,   international 

exchange,  3. 
Time,  allow  ample,  for  transit  of  bills, 

65-  . 
Time  limitation  of  silver  pajrments,  loi. 
Trade  with  Holland,  151. 
Transvaal,  its   cities   and    moneys  in 

use,  263. 
Transvaal  Loan,  British,    15. 
Travelers'  Letters  of  Credit,   66,  98. 
profitable   source  of  revenue,    how 
opened,   73. 
Tunis,  its  cities  and  moneys,  263.  264. 
Turkey,  its  cities  and  moneys,  249. 

U 

Uruguay,  its  cities  and  moneys,  285. 
Use  of  telegraphic  cipher  code,  5 1 . 
Used,  how  Letters  of  Credit  are,  85. 

V 

Value,  account,  131. 

Value  of  foreign  coins,  235. 

Values  of  foreign  coins,  287. 

Values,  standards,  all  countries,  288, 

289,  290. 
Venezuela,  its  cities  and  moneys,  285. 

W 

Waterlow  &  Sons,  Limited,  London,  7. 

Weight  certificates,  29. 

Wire,  daily,  by  German  bank  to 
American  bank  of  private  rate  of 
discount,  134. 

Working  capital  of  Foreign  Depart- 
ment,   126. 

Written  instructions,  195. 


Zanzibar,  its  cities  and  moneys  in  uscj 

264. 
Zwitzmeyer,  G.,  4. 


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